End-of-Year Financial Planning for Freelancers

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While freelancing is largely touted as offering you freedom, flexibility, and unlimited earning potential, it also comes with many added responsibilities. For one, no HR manager or accounting department is handling your finances. You're tasked with your financial housekeeping, from making sure you have enough stashed away to pay Uncle Sam.

And as if the end-of-year isn't busy enough, it's also an opportune time for financial planning. That way, you'll have your money ducks in a row and be well-prepared for the new year. Here, we walk you through some essential end-of-year tasks to check off your list:

Reassess your business budget

Even if you side hustle part-time or moonlight on top of your day job, you'll want to maintain a business budget. Depending on the nature of your business, expenses you'll need to factor into your budget include:

Subscription fees
Online tools and software (e.g., accounting software, cloud storage software, productivity software)
Commercial auto insurance
Rideshare insurance
Materials, supplies, equipment
Inventory
Paying subcontractors
Business-related travel
Uniforms
Advertising and promotion expenses
Health and dental insurance premiums

Determine how much you spend in a month or quarter and determine what you need to account for, moneywise. This will help you steer clear from spending more than you have.

If needed, make tweaks as necessary. For instance, if you rarely use that productivity software, consider dropping the subscription. Or, see if there are less expensive or free versions you can try.

Organize business-related expenses

A common financial housekeeping mistake is not keeping proper track of business expenses that qualify for a tax write-off. At the end of the year, one often discovers that their business expenses are mixed with their personal ones. Separating your business expenses from your personal ones is a time-consuming, hair-pulling affair.

The end of the year is a good time to separate out personal expenses from business expenses. Business expenses can include:

Vehicle expenses (if you use your vehicle for work)
Meals and entertainment
Business travel
Business tools, equipment, supplies
Online software and tools
Health insurance premiums
Training programs and education
Home office expenses (if you have a home office)
Bank fees
Advertising and marketing-related expenses (e.g., website hosting, social media ads)
Professional services (e.g., hiring an accountant, attorney)
Memberships to professional organizations

Keeping track of income that fluctuates and comes from different sources is also no easy feat. To keep things simple, consider opening a separate business checking account to track expenses as well as income from you freelancing business.

You can also consider a credit card designated for your business-related expenses to help you keep better track. Plus, you can take advantage of credit card perks, such as travel rewards, or earning extra points for certain business spending categories.

Save for taxes

Tax prepping is a must if you freelance. For starters, you're responsible for paying your own income and self-employment taxes. Plus, you are usually required to pay quarterly estimated taxes, so it's important to have enough liquidity to pay Uncle Sam when these deadlines roll around.

To start, save a portion of all the pay from your side hustles– a general rule is to set aside anywhere from 20% to 50% of your freelance earnings. It's a wide range, so it's best to talk to a tax professional who can offer guidance based on your unique situation.

And a big change for 2023: If you use payment platforms such as Venmo for your business, you'll be responsible for paying taxes on those earnings if you earn more than $600.

Keep your business emergency fund in the black

Just like you need a rainy-day fund for your expenses, you'll also want to have a bit of a cushion for your business.

You never know when you might need some cash to tide you over until the next influx of client payments comes through. Or should a tire go flat while you're gigging as a rideshare driver, you can tap into your business emergency fund to cover unplanned expense.

While keeping at least three to six months of emergency funds in your personal savings is recommended, it's up to you how much you want to save for your business.

Bottom line

Ensuring you stay on top of your financial housekeeping as a freelancer will help prevent hassles, headaches, and costly mistakes. In turn, it'll ensure you're well-prepared for the new year.

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Jackie Lam

Jackie Lam is a personal finance writer whose work has appeared in Salon, Business Insider, and GOOD.