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April 24, 2018

7 Helpful Tips for the Self-Employed IT Worker

Self Employed IT Professional? 7 Tips to Help You Thrive

Being self-employed in the IT industry comes with a number of pros and cons. Most people agree that the pros far outweigh the cons, but opinions vary on the subject.

Regardless of which side of the argument you land on, everyone can agree that self-employed professionals operate under a unique set of circumstances. Figuring out what it takes to be successful under these conditions is the key to longevity.

7 Tips to Keep in Mind

According to data gathered in the latest census and published by the Bureau of Labor Statistics (BLS), there are more than 15 million self-employed professionals in the U.S. This accounts for 10.1 percent of total U.S. employment.

The IT industry contains a proportionally high number of self-employed workers, largely due to the low overhead costs and the fact that much of the work in specific niches can be completed remotely.

Despite the high number of self-employed workers in the IT industry, many still find this sort of setup to be confusing and stressful. Whether you’re newly self-employed, or have been for years, knowing how to handle some of the financial and practical aspects of your job will remove much of the burden associated with it.

Specifically, you may find the following tips helpful:

1.     Stay Organized

As a self-employed professional, there’s no one else is looking out for you (at least in terms of record keeping). It’s up to you to create a system for storing important financial information, tax documents, and business-related files. The more organized you are, the easier it will be to handle things like audits, tax returns, budgeting, and miscellaneous client requests.

2.     Maximize Tax Deductions

Taxes aren’t fun for anyone, but you can lower your tax burden and keep more of your income by maximizing deductions. Some popular ones for self-employed IT professionals include:

·     The home office deduction is an easy one to claim. There’s a simplified method and a more complicated method that involves calculating a percentage of home costs. Most find it easier to use the first option.

·     Any supplies, equipment, or software subscriptions you use for your business efforts are tax deductible. Make sure you account for these when calculating your income.

·     Do you have unpaid invoices from a couple of bad clients? Unbeknownst to many, you can actually write off these amounts.

·     Contributions to certain retirement accounts, like a Traditional IRA or SEP IRA, can significantly lower your taxable income.

Do your research and look for as many opportunities to save as possible. While the tax code is complicated, it’s not impossible to understand.

3.     Remember to Pay Estimated Taxes

Taxes look a little different for self-employed individuals. Not only do you have to pay both “halves” of Social Security and Medicare taxes, but the way in which you pay your taxes is unique. If you expect to owe more than $1,000 in a given year, you have to pay estimated taxes.

“The IRS tries to make it easy,” TaxSlayer explains. “They encourage taxpayers to ‘pay as they go, so they won’t owe.’ In other words, self-employed workers will determine how much of their income to set aside for tax payments by estimating that amount. Then, they make a payment four times throughout the year.”

At first, quarterly estimated payments may seem like a pain, but they really do have your best interests in mind. It’s far better to make diligent payments throughout the year, than to find out you owe thousands of dollars come tax season.

Mark the four payment dates on your calendar and set aside money each week/month so that you’ll be prepared to cut those checks.

4.     Build an Emergency Fund

As a self-employed professional, you have slightly less “job security” than the average individual. In light of this, it’s smart to build an emergency fund for yourself.

An emergency fund is defined as three to six months of living expenses in a savings account that you don’t have easy access to. In other words, you don’t want to put it in your normal account where you have ATM or debit card access. The only time this money should be touched is if you find yourself in a situation where your income dries up and you need to pay bills.

5.     Save for Retirement

You may not have access to a company-sponsored 401(k) match program, but that doesn’t mean you’re unable to save for retirement. In fact, you have to be extra diligent about tucking money away for the future.

Self-employed individuals have access to a number of different retirement options. IRAs are most commonly used, with Traditional, Roth, and SEP leading the way.

As a general rule of thumb, you should be putting 10 to 15 percent of your annual income into retirement. If you do this, you’ll be better off than 99 percent of your peers.

6.     Stoke (News - Alert) Self-Discipline

If you’re going to stay successfully self-employed for any length of time, you must learn to cultivate self-discipline. Set specific work hours and, even if you’re working from home, treat your day like you would at a normal office.

It’s easy to get distracted or succumb to laziness, but remember that your financial success depends on your ability to lock in and stay focused on the task at hand.

7.     Discover Balance

While some people find it challenging to be disciplined, other people land on the opposite end of the spectrum. For these folks, it can be hard to stop working.

As a self-employed IT professional, balance will be your friend. Learn to create some separation in your life. Don’t ignore the importance of maintaining personal relationships, health, and hobbies.

Set Yourself Up for Success

Self-employment should be enjoyable and rewarding. It’s nice knowing you’re the one in charge, even when there’s a hint of uncertainty regarding the future. By gaining control over issues like taxes, retirement planning, budgeting, and scheduling, you can give yourself a secure foundation upon which to build for the future. 

 Author Bio:

Costea Lestoc

I began writing as a professional on my personal blog and then discovered my true calling, which is writing about technology and news in general. I am a technical writer, author and blogger since 2005. An industry watcher that stays on top of the latest features, extremely passionate about juicy tech news and everything related to gadgets. For tech tips, my email address is neneacostea at gmail.

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