Freelance work is a great way for women to increase their income, and can even be tax advantaged. Right now, MANY people are thriving on multiple gigs, jobs, and side hustles. If your freelance works goes well, it can even become your primary source of income. One important way to make the most of your freelance money: keep those dollars organized and separate.
- It’s really important to keep your business and personal finances separate, regardless of your business structure or size
- Business expenses can lead to tax benefits – research what’s deductible for your business and track your costs.
Why Separate Your Freelance Money? PROFIT!
Why? First, lady solopreneur, it makes it easier to see if your efforts are profitable and worth the effort. It’s easy connect your freelance money to your personal bank account, but it deeply muddies the waters. When the side hustle money, both income and expenses, goes in and out of the same, separate account, its immediately obvious whether it’s working. Is the 10 hours a week you’re delivering for DoorDash or the side hustle you run from your kitchen table after dinner actually worth it? Additional income streams are harder than a 9-5, so its even more important for them to pay.
Everyone has a different threshold for what “profitable enough” means. It might be “enough freelance money to make an extra debt payment” or “enough income to support my family”. (It was the later for my mom, who was a 1099 contractor for 25 years, and is still Queen of the Hustle).
SIDE HUSTLE TAXES ARE YOUR BFF – TRACK EXPENSES!
Fun fact: if you have multiple jobs, you can write off 56 cents per mile of your commute or your transit costs between them. What does that mean? It means if your jobs are five miles apart, and you hustle between them three times a week, you lower your taxable income by $262 just by writing that down.
I do taxes for people building incomes from a combination of W2, cash and 1099. Freelance money open up a whole new world of ways to shelter money from the tax man. Expenses with your side hustle are often tax deductible, so as you make money in different ways, how you file taxes will change. There is an Ocean of Side Hustle Tax strategies, but here is the highlight: by keeping your freelance money separate, its much easier to track your expenses and make the most of your new tax situation.
After you figure out what type of income is right for you (Clever Girl Finance has a good guide), do a little research on what you can expense in that business. Could be your home office, equipment and devices, subscriptions, and other costs that benefit your freelance business. TRACK THEM. You can literally just write them on a piece of paper. These will be deducted on your Schedule C (TurboTax makes this easy) as business expenses, separate from your day-job income and household spending.
One note: don’t get creative with taxes. It does not end well.
How to Keep your side hustle money straight
The key is to run two separate finance accounts and records. This doesn’t need to be complicated. You can open a separate checking/savings account to make it easy. Direct payments from your freelance and gig jobs into the business account. Use the debit card to make all your purchases on behalf of your private business. Keep these transactions separate from your personal purchases like groceries and household items. If you still have a day job, that income should also remain a part of your personal finance accounts.
When you shop, separate your check-outs for business and personal purchases. Even if you are shopping at the same place using the same account or card, check out twice so that the different expenses are identifiable.
HOW TO Get a Business Bank Account
First, it doesn’t need to be a “Business” Account. It can be a personal savings or checking account unless you have an LLC or corporation. Just make sure its separate from your other money. And go for free! For most side hustles, you really don’t need anything beyond a debit card, so don’t feel FOMO about bells and whistles.
Generally, I avoid the big banks, like Chase, Wells Fargo, Bank of America, etc. They are a real pain in the ass to do business with and charge high fees. I have heard good things about Chime and Ally, if you want online options (not paid links, and I have not used either). Its also very likely that you qualify for a credit union search around in your area. Credit unions are fantastic because they charge low fees, are used to dealing with self-employed people, and are cooperatively owned. Love me a credit union!
Time to Pay Yourself!
You probably want to put some of your freelance income into savings, debt or dinner. Time to pay yourself! If you transfer to the same personal account on a regular interval, its easier to track how your side hustle impacts your financial picture. This also makes it easier to identify what is an expense vs your income.
I was raised by the Queen of the Side Hustle, who was a single mom and independent contractor for 25 years. You can build a wonderful life for yourself and your family with a combination of income streams and no W2 employer. It is more work to set up, but I have seen how that work radically empowers women to master their finances.
Join our AskFlossie community where all women are empowered with community and knowledge to build stronger financial lives. We’re here to be your financial wingwoman!