Money, money, money… Money! January 14, 2011
Posted by Jill (@bonnjill) in Business practices.trackback
For U.S.-based translators, tomorrow’s January 15th and quarterly taxes are due. You should also be thinking about getting your tax preparation started. (Thanks to Caitilin I now know we have until the 18th (see the comments). Thanks, Caitilin.) This fact and the blog post cited below have me thinking about money today.
Even though this blog is run by a company pushing their online invoicing/billing system, this guest post by Joseph D’Agnese & Denise Kiernan, authors of The Money Book for Freelancers, Part-Timers, and the Self-Employed (Crown/Three Rivers, 2010) entitled Five Money Mistakes Freelancers Make is well worth reading. These tips bear repeating over and over again, because freelancers need to hear this advice and embrace it. If you don’t I can guarantee you will have sleepless nights worrying about how you will pay your bills and could possibly run yourself into bankruptcy (if you don’t follow tips #2 and 3). Been there, done that (the sleepless nights – not the bankruptcy part).
They include:
1. Mistake #1: Not Having an Emergency Fund
2. Mistake #2: Not Saving for Taxes
3. Mistake #3: Not Paying Estimated Taxes
4. Mistake #4: Not Treating Yourself Like a Business
5. Mistake #5: Living for the Big Score (aka Save for Retirement!!! and don’t lease or buy things you can’t afford right now)
And one commenter suggests one more – Mistake #6 Not Hiring a Decent Accountant (if you’re more than a one person shop). …although I just have to say that hiring an accountant is a good idea in general. There are quite a few freelancers who do their own taxes, but they are generally stressing themselves out a day or two before taxes are due compiling their tax return. And while they are doing their taxes they aren’t translating (and are turning down any jobs that come in). It takes me a half hour to print out my report for my accountant and e-mail it to him and an hour to meet with him, sign it and pick up a copy for my records.
In a nod to Patenttranslator, here is the inspiration to the title of this blog post:
Musings from an overworked translator 
Jill-
Thanks for this timely reminder! Because of a happy alignment of weekend and MLK day, we have a bit of a grace period: the January payment isn’t due until the 18th!
Caitilin
Thanks for the reminder Jill! And don’t forget to send your subcontractors their 1099s (I think those are due January 30, as are quarterly payroll taxes if you’re an S-Corp). Yikes! I really like these money rules; when I give freelancers advice about money, I also usually say:
-if you have credit card debt, you’re living beyond your means
-before you get negative about the “constraints” of living frugally (says she who doesn’t own a clothes dryer…), think about the real constraint of having to work to pay off debts, or having to work into your old age because you have to, not because you want to
-to build up an emergency fund, pay yourself first. If you start with a small amount, you won’t miss it.
I do think that a lot of freelancers are willfully averse to dealing with money because they think of themselves as craftspeople rather than businesspeople. I love what I do and don’t intend to retire early, but the emotional freedom of being debt-free is worth a lot!
Good stuff, Jill. We don’t know enough about tax issues, and keeping up on it sounds terribly tedious, so we cheerfully outsource that to trusty CPAs in the US and Europe. Our CPA always tells us that there’s no penalty for not doing estimated quarterly taxes in the US and we just do a big payment at the end of the year — and yes, we save up for it. 🙂 I’ve always disliked the guesswork involved in an estimate, so an end-of-year payment works for us. Whew, need to get a bunch of paperwork to the CPA soon.
And could not agree more with Corinne: frugality rocks.
Info on Penalty for Underpayment of Estimated Tax:
http://www.irs.gov/taxtopics/tc306.html
I agree with Jay – there is a penalty if you underpay your estimated tax. I keep a running spreadsheet of my income for each quarter and pay 20% from the running total as my estimated tax. Last year I paid 25% and had a huge refund, so 20% is the way to go.
I base mine on my prior year’s tax liability. As long as I pay at least that amount (in quarterly payments), I won’t be penalized for underpayment even if my current year liability is higher.
Yes, but what if your income is lower than the previous year? Like mine was about two years ago – $12,000 lower. It’s okay if it is similar to the previous year or more, but if it is lower you are kind of screwed (paying more in taxes and having less money to pay those taxes).
Thanks for the mention!
–Joe & Denise
The Money Book for Freelancers
feed-the-monkey.com
Thanks for the info! I’ll check with my CPA, but she’s with a great firm and specialized in small businesses, so I believe she’s quite competent. 🙂 Also, withholdings are done through my hubby during the year, so I am already paying estimated taxes through him (at least that’s what I understand from the IRS website). Leaving in the capable hands of the CPA.