Due to the freedom and flexibility that comes with self-employment and working from home, interest in self-employment has increased greatly in the last few years.
Now, around 9.6 million workers qualify as self-employed, with that number set to rise to 10.3 million by 2026.
And though there are many benefits of working from home, the financial side of things can get rather tricky. Between unsteady income, high tax rates, and extra expenses, it’s easy to become overwhelmed and find yourself surrounded by debts.
But a little preparation and education can help you avoid some common missteps and allow you to save some extra cash for your work from home jobs.
Here are some financial planning tips for those who work from home.
Set Aside Money for Taxes
Right off the bat, it’s crucial to note that self-employment taxes work quite a bit differently than “normal” taxes. There are different forms to fill out, separate write-offs you can include, and even a different tax schedule to follow.
But most of all, you’ll end up paying more. In addition to your federal and state taxes, you’ll need to prepare for a 15.3 percent self-employment tax.
These taxes can really set you back, especially as you’re just starting out, as you may not have a regular stable of clients yet.
Set aside money for your taxes each payday. Saving a little bit now will make tax time far easier.
Learn About Tax Write-Offs Associated with Work from Home Jobs
The above section may seem a little scary to some. While self-employment taxes can certainly be a beast to contend with, you’re not without some help.
Like with your personal taxes, you can deduct certain expenses from your taxes to save a little bit of cash.
A few of the most common write-offs for the self-employed are:
- Workspace
- Work supplies
- Business lunches
- Travel
- Advertising, such as branding efforts
You can even write off things like your Internet bill or car maintenance in certain situations!
But because of these extra deductions, you’ll need to be careful about providing proof.
Start keeping a ledger of your business expenses filled with receipts, documents, and proof of income. To make tracking your finances easier, you can even use a paystubs generator to accurately track your income.
Keep these in a safe place. As an extra safety measure, scan each document and store it on a secured USB drive or folder on your computer.
Create a Budget
Though taxes are a big concern for many freelancers, they’re not the only expenses to keep up with. In the meantime, you’ll have to make sure you’re making enough to cover your basic living expenses.
To stay debt-free, create a monthly budget for yourself.
Since income fluctuates for most who make money from home, find your average income and use that as a base.
Next, calculate your monthly expenses. It never hurts to overestimate a little, just to make sure you have some breathing room. Be sure to include things like healthcare, entertainment, and travel expenses.
Finally, make an effort to set aside 10 percent of each payday and put it into savings. Though 10 percent is the recommended amount, some are quick to point out that your percentage should vary based on individual needs.
This extra cash can provide some comfort during less productive months and can offset the costs of an emergency.
Enjoy Flexibility and Financial Freedom
Work from home jobs can be just as profitable and lucrative as an office job. The trick is to prepare for the extra expenses along the way. This guide should help you prepare for a financially sound future.
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