Finances Archives - Bunny Slippers And Coffee

Is An LLC Right for Your Business?

As this tax season comes to a close you might be asking yourself whether you should stay as a sole proprietor or become an LLC business next year? The two terms can be confusing, especially when it comes to saving as much as you can from your hard earned income.

If you are in the beginning stages of working for yourself then now may not be the right time to invest the energy and expense of becoming an LLC. Thankfully there are a few different legal answers that can help guide us along as we plan ahead for 2018.

Each state has its own set of rules for business owners and so you will want to look that up on the treasury website for more information. Here’s a basic overview of the difference between an LLC and sole proprietorship so that you know which direction to head in.

Limited Liability Corporation or LLC

This is a structure that you should build up to as a solopreneur or freelancer, and requires more steps to go through in order to create a personal or business name with LLC attached to it. According to Nolo your personal liability is reduced because your tax filing is independent of your personal taxes. You also get the benefit of more profit and loss opportunities each year. It’s time to go this route when:

Your business has grown and now hires employees or contractors
You plan on approaching investors
New partnerships are emerging

Two benefits of filing as an LLC are the tax savings and protection against individuals for things like lawsuits, debts, ect. The disadvantages are the cost of legal fees and forms involved according to your state, which can increase annually. For example, you could be paying anywhere from $300 up to $1,000 to become an LLC business.

Sole Proprietor

As a new business owner with a limited budget you may be filing this status using the 1040 Schedule C form for your expenses. In fact, 75 percent of small businesses in the United States file under this status according to Inside the Box. Because you are not under the covering of a partnership or corporation you are liable and responsible for any risks and liabilities. This is a good idea when:

It’s your first time as a freelancer
You don’t plan on hiring employees or contractors
Your business is not a startup needing capital
You have a low budget

As a solo business you are responsible for filing your own taxes, which are done on your personal form. The benefit of this type of filing is that you are not answering to a partnership, which gives you more control over your business. It’s also less expensive as you don’t need to pay for legal services and forms. I recommend filing for an EIN number with the IRS instead of using your social security number, as this is more secure when dealing with multiple clients. The disadvantage is that your are liable for debts and any lawsuits that might occur.

As you make the decision to either become and LLC or stay as a sole proprietor it’s important the weigh the pros and cons of each and have a plan mapped out of where you see your business going in the next year. If it’s still small without the need for capital or employees then it may make better financial sense to stick with what you have until you start to grow. A business that has a higher profit margin, however; may benefit from more tax write-offs and protection of personal assets.

Check with a good CPA and have them do an overview of your current portfolio before making a final decision. Depending on which state you live in you might want to consider filing for an LLC in a place like Delaware, Wyoming or Nevada, which offer lower tax rates for businesses.

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In What Ways Can You Save For Retirement As A Freelancer?

By Audrey Leave a Comment

Do you have a retirement plan in place as a freelancer? Have you thought about putting money away, but don’t know where to start?

Whether you have a small part-time income or earn a generous living working from home it is possible to prepare for your future just as you would as an employee of a company. The only difference is you are your own boss and can make the final decision in how much to put away each month.

According to an article on CNBC four out of 10 people who are self employed do not have a retirement account such as a 401(k) or an IRA. And 40 percent aren’t saving anything!

So why are we as freelancers (me included) missing the mark when it comes to planning for our golden years? The article points out several reasons according to a study by Small Business Majority:

We don’t make enough income
Our paychecks are unpredictable
We rely on our spouses’s plan instead
The plans cost too much
Procrastination
Fear of government tied savings plans
Limited options
We’re choosing to pay for healthcare instead (or do we really have a choice?)
Not enough time

Yikes! That’s a real wake-up call. Before we know it we’re 65 years old wondering where all the time and money went. The good news is that you can begin today to do something to help secure your future. Here’s some good advice I dug up along the way in researching for this article that I believe will help all of us:

1 – Set aside a little each month

Even if your income is up and down without any real predictable numbers you can still come up with a budget that allows you to save toward your retirement. Start with what you can do and increase that a amount little by little in order to create at a least 6 months of savings that cover all of your living expenses. This might mean trimming some of what is coming out of your current budget like too many trips to the coffee shop or buying new when you could be getting used items instead. Find a way to creatively save money if your income does not currently support building a savings.

2 – Create your own investments

Talk to your CPA about how your business can be marketable later as a sale or investigate whether purchasing rental property would be a good option. Other ways to do this are with vacation rentals, investing in precious metals like gold and silver, or purchasing a existing company that has good profitability.

3 – Purchase a 401(k) for solopreneurs or individuals

The IRS explains exactly what a traditional plan looks like for freelancers, which is called a one-participant 401(k) plan. This is specifically for sole proprietors and business owners who do not have any employees, and includes the same rules as a traditional plan.

4 – Invest in alternative retirement plans

If your income has increased considerably then you might want to consider more flexible options such as a Simplified Employee Pension (SEP) plan, which is available whether you are solo or have employees and can include up to 25 percent of your pay. Looking for deductions? Then you can take a look at either a traditional IRA or Roth IRA. Both have tax benefits and allow a generous contribution. For a full list of other types of retirement plans take a look at what the IRS has listed here.

5 – Set up a separate business account

Eliminate the temptation to tap into your earnings by creating a separate business account, which could also include a savings account to pay your taxes. It’s fairly simple to do, and is available to individual freelancers as well as small business owners. You’ll find that at the end of the year your taxes will be much easier to calculate as all of your expenses and deductions will be in one place.

Planning for retirement is just as important as securing your first paying client. Without this we are just living paycheck to paycheck without a backup plan for emergencies and moving out of the work force. As always talk to a good accountant about which option best suits your current budget and business needs before making a final decision.

Is it Possible to Make Good Money as a Freelancer?

By Audrey 1 Comment

Are you thinking about leaving your full-time job for a career as a freelancer? Does fear of the unknown stop you from pursing your dream?

The good news is that by 2020 about 40 percent of today’s workforce will be made up of independent contractors who make as much as $21 an hour or more working from home.

This means you could have a very good chance of completely replacing your current income along with saving money on gas, eating out, and daycare costs.

According to a study by Payoneer these are the top industries leading the way in the freelancing world:

IT & Programming
Design & Multimedia
Writing & Translation
Sales & Marketing
Engineering & Manufacturing
Finance & Management
Legal Consulting and Misc.

We are all familiar with the “glass ceiling” among male workers versus female. When you set your own rates and work for yourself, you can help close the gap and earn what you are worth:

freelance-income-male-female — Photo courtesy payoneer.com

In fact, it’s very possible to garner a six figure salary according to Daniel Wesley on CreditLoan. “Take a look at the market, figure out the direction it’s moving in, and align yourself with the right opportunities and company,” he writes. “Your goal is to close the gap between what you’re earning now and that $52 hourly wage.”

If you’re looking to move beyond the extra income from side gigs and ready to earn a full-time income then here are a few more reasons to take the leap:

You’re not tied down to one company

An independent income offers flexibility with options to work with multiple clients or businesses as opposed to being locked into the 9 to 5 in one position and company whose specific set of rules need to be followed. Paying for extra perks like health insurance is not a problem when your income is much higher than traditional employment. As you get to work on various projects you can set your own hours and work at your own pace.

You set the fees

The potential to make more money per hour is a lot higher than working for a company as a direct employee. Most companies are willing to pay the higher contractor fee as they get to save money on taxes. Which brings me to an important point — make sure you hire a good accountant who can guide you with the right way to proceed with your business either as a 1099 misc. contractor or an LLC. Because you are the one handling the taxes it’s easy to lose out if you don’t know about the right way to file and which write-offs are available to you.

Builds your skills

If you are working on different types of projects that require wearing several different hats then you have the opportunity to add to your skill set, which may not be as possible through employment for one company. This also allows you to add important input for your clients and help them improve their products or services. Think of this as free education and training, which equals job security as you become more marketable.

Layoffs don’t matter any more

When the economy is down employees lose out and are faced with the dreaded “pink slip.” When you work for yourself you can build your own nest egg and client base without the fear of being fired. As long as you don’t place all of your eggs in one basket you can allow a diverse enough list to carry you through the lean seasons.

More companies are open to hiring contractors

The latest trends over the last few years have shifted more toward hiring an outside person on a contract basis rather than going through the expense of bringing on a full-time employee in-house. There are a lot of reasons for why this is happening, one of which is the high cost of Obamacare along with the large tax burden placed on businesses. Contractors also offer specialized skills without any personal baggage that might come along with a worker inside the company. This also saves a business money on training and education as freelancer already comes equipped with the experience that they need.

Once you decide to more forward as an independent contractor you will want to transition slowly if you are currently employed, as well as plan ahead for any expenses such as medical insurance, an accountant, a retirement savings plan, ect. It’s always a good idea to have a savings buffer in place to carry you over through your transition or any unexpected emergencies that might come up.

It’s not hard to become an online freelancer or start your own business while working in a full-time job. Just download my free eBook, and get started on your career today:

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This is How to Keep Your Freelance Budget Under Control

By Audrey Leave a Comment

Do you know exactly what your budget is doing?

Are you finding that your business is either behind or just breaking even?

As a freelancer you want to have a profitable, growing gig, and a well-planned finance strategy that you can stick to will help you stay on track and not waste your hard earned money.

I personally like to type all this out onto a spreadsheet that can be checked each month, but there are many different apps out there that can help you create something that will provide reminders, accountability, tracking, and more.

This of course came after I made a few accounting and tax calculation mistakes, which caused me to hire a professional to help me correct my finances.

Piling up debt over business expenses like website hosting, electronics purchases, dining out, ect. is a common struggle for many of us freelancers. But trimming down and knowing the difference between needs versus wants can help you get on a better track.

Bottom line is if you’re spending more than you earn chances are you’re not following a good budget. Or maybe you created one a few years ago and now your income has changed. Whatever the case may be there are a few simple steps you can take get your finances in order and help your income grow.

Audit your spending

You first need to find out is exactly where your money is going. Take a look at your bank account over the last two months and take note of where the expenses are and how much. Ask yourself, “do I really need to be making this purchase or have this membership?” You’ll be surprised to learn about the little foxes stealing your increase fairly quickly. I had a friend once who did this and discovered she was spending about $350 each month just at Starbucks alone! Now that’s a lot of money just for coffee. While this might be good as a tax write-off for business meetings as a general rule you can make your coffee or special drinks at home instead.

Here’s a few free apps to help you get started:

Spend some, save some

It’s a good idea to have a savings account to fall back on in the case of an emergency. Dave Ramsey often talks about this — before he knew how to manage money his credit cards rescued him from trouble. This led to bankruptcy and having to start over in his finances. If you’re a Christian the first thing you need to do is put God first in your finances. Yep, that’s called tithing :-). Start with ten percent — God doesn’t want your money by the way. He wants to know that you trust Him first to be your provider. Once you do that it’s amazing how much more you understand about how to handle what He has entrusted to you.

The next thing to do is to put away some money in savings. Make a commitment and stick to it — decide that you won’t touch those funds unless absolutely necessary. Many people put away ten to twenty percent each time they are paid. Find what works for your budget and increase this as your freelance business grows.

The last thing is to invest in things that will help move you forward such as online classes, a software upgrade, business clothes, ect. As you purchase things that really matter you’ll find that you’re spending less on frivolous items.

Draft a workable budget

After taking a look at what your income and expenses are it’s time to create a ballpark outline that you can increase or decrease as needed. Freelance income can go up and down frequently depending on client workloads and seasons, and so you will want to put together an average number first.

For example, after deducting thirty five percent for your business taxes you would then formulate the total income over the last three months and then generate an average number from that. Then you would outline your actual outgoing costs, which will help you eliminate any unnecessary spending. This can all be done on a spreadsheet or with great apps like these:

Set aside specific spending money

This is sort of like giving yourself an allowance or paycheck and can really work well as far as putting a tab on spending when you’re out — especially at the grocery store! Some people use a specific amount of cash each month and once that has run out that’s it. No more spending! Others purchase a separate cash card that’s loaded onto each pay day or month, depending on how your income works. Find a system that works for you and see if that helps curb going over your personal budget.

Keep a separate business account

If you find yourself dipping too much into your freelance income it may be a good idea to open another bank account just for your business. That way you can transfer what you need to live on as if the account itself is your employer and paying you. Not only does this help track expenses at tax time, but also helps provide a safety net for your main income.

Once you have grown to a point where there is more money coming in this may be time to become an LLC and hire a CPA or an accountant to help you. Many states like Wyoming and Nevada offer low tax incentives for solo business owners, but you will want to get professional advice first before taking this next step. Sometimes it makes more sense to stay an independent contractor — usually if you’re making more than $40,000 a year on your freelance income then that would be a good time to evaluate whether you should become an LLC.

Write down a bucket list

Where do you want to see yourself in a few years? Look ahead to the future and list all of things you would like to have happen in both your business and personal life. As Habakkuk 2:2-3 states in the Bible:

“Write down the revelation
and make it plain on tablets
so that a herald[b] may run with it.
3 For the revelation awaits an appointed time;
it speaks of the end
and will not prove false.
Though it linger, wait for it;
it[c] will certainly come
and will not delay.”

Pastor Chris Hodges of Church of the Highlands pointed out in a Vision conference at our church that keeping a bucket list diminishes the focus of your circumstances and helps you to see what can be in the future. “Dreams have a habit of coming true,” he said. If you’d like to catch the full sermon your can view it here:

Creating a financial plan for your freelance business is not hard to do once you take the time to assess where your spending has been and what you would like it to be. As you create a plan based on your current income you can start to plan ahead for the future in how you would like to see increase.

What works for you in creating a budget?

Got any favorite apps to share?

Share with me below!