Freelance tip: Two financial tasks to think about before the end of the year, so that they’re in place for January 1.
1️⃣ Are your business and personal finances completely separate? If they’re commingled, I’m begging you (literally, begging you), at least create a separate checking and savings account that you use only for business. Don’t be that person who gets audited and has to comb through every transaction, wondering if it was business, or personal. Separate accounts make it much easier to determine how much you made and how much you spent, and you can immediately redirect a certain percentage (I do 40%) of every payment into savings, to pay your taxes, pay yourself when you take vacation, buy a new computer, attend a conference, etc.
2️ Think about whether you should incorporate. In the U.S., if you’re a sole proprietor (the default business structure if you’re not incorporated), you pay self-employment tax on every cent that you make. That’s a big hit: 15.3%, to be exact, *on top of* what you would pay in taxes if you worked for an employer. This is because you pay the employER and the employEE portions of the Social Security and Medicare taxes.
Incorporating isn’t a trivial decision. In most states, it’s easy and cheap to form a corporation (check your state’s Secretary of State website), but the hitch comes when you may be required to file quarterly payroll taxes and a separate corporate tax return, and the penalties for not doing so can be steep.
However, incorporating allows you to *legally* avoid paying self-employment tax on some of what you earn. Even if you are the corporation’s only employee, you can legally allocate some of your income to yourself as wages (subject to self-employment tax), and some of your income to the corporation as profit (not subject to self-employment tax). In my case, having an S-Corp saves me about $6,000 in taxes per year, which in turn covers the rent on my office. Since I hate working from home, it’s a good tradeoff. Definitely speak with an accountant who has small business expertise if you are thinking about incorporating!
Thinking about these issues *now* will get you prepared for January 1, rather than having your accounting or business structure patched together throughout the year!

Corinne McKay (classes@trainingfortranslators.com) is the founder of Training for Translators, and has been a full-time freelancer since 2002. She holds a Master of Conference Interpreting from Glendon College, is an ATA-certified French to English translator, and is Colorado court-certified for French interpreting. If you enjoy her posts, consider joining the Training for Translators mailing list!
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