Budgeting for Freelancers, Part Five: Tax Time Confessions

It’s that time again: another Budgeting for Freelancers post!  This series is my way of sharing my imperfect approach to freelance life.  Emphasis on the imperfect part for today.  Click here to read Part Four and find links to my earlier posts.

One of my motivations for writing this series is that most of the advice for freelancers on the internet is idealized.  By “idealized,” I mean the advice assumes ideal-case scenarios, which makes freelance money strategy seem easy and do-able.

The truth is that it’s not.  It’s really not.  It’s messy and uncertain, and it comes with a steep learning curve.  Today I’m going to share with you the backstory on why I’ve been freaking out about taxes.  (Don’t worry—this story has a happy ending.)

In October of 2014, I became the official accountant for Paul and me.  I manage our shared budget, tracking our expenses and our income.  I keep tabs on how much money we have saved for summer (our dry season—we’re both academic tutors).  I am also in charge of taxes.  Paul is in charge of some of his bookkeeping, but I manage our overall financial life.

In August of 2014, Paul and I completed our move to Austin, and I transitioned to full-time freelancing as a tutor.  I had been working two part-time jobs before we moved: tutoring and managing a lab at Texas A&M University.  I had taxes taken out of my lab job paychecks, so I was paying some taxes for most of 2014.  But once I started freelancing full-time, I paid no taxes.  Whoops.

Actually, it’s not quite so simple.  In June or July, I had checked on my “tax status” to see if I should send in a payment for my freelancing income.  And the answer was no.  After we moved to Austin and I started hustling for work, I was so freaking busy with work that I didn’t even think about taxes.  Plus I was making so little money for the year that how could I possibly owe any taxes on top of what had already been withheld?

The answer is a lot.  I could owe a lot in taxes, because self-employed people bear a huge tax burden, something on the order of 20% in taxes.

So now I owe some money because of my own negligence, and Paul owes some money because he didn’t make any estimated tax payments.  Fortunately, the late payment penalty is very reasonable, so I can breathe a sigh of relief about that.

Altogether (because I think the numbers matter), we owe about $3500 in taxes.  I’ve been freaking out as I scramble to find $3500 in our budget to pay taxes on April 15th.  And I think I’ve managed to do it, though it will drain our liquid assets.  I’ve been pretty upset about this situation.  On the surface, it seemed like maybe I was just upset that self-employment taxes were unreasonably high and now I had to drain our bank accounts.  I mean, I was definitely upset about that.  I was in despair: it’s so hard to be self-employed, and on top of that, 1 out of every 5 hours I work is to pay taxes just for the luxury of working my ass off with no benefits.  I started thinking, I can’t afford to be self-employed!  It was just too hard.  But every time I thought about going back to having a boss and letting someone else call the shots in my work life, I thought, Absolutely not.  I’m not giving up just yet.

So that gave me some clarity on how I feel about self-employment: grittingly determined to make it work.  But I still felt very upset, even lashing out in anger one night over something petty and stupid at the house.  That night was a turning point for me: there was something deeper going on here.

What I came to realize is that I was embarrassed and ashamed that I had fucked up our taxes this year.  I didn’t know what I was doing, and I hadn’t built taxes into our budget.  My negligence came from several places: 1) I had been paying taxes and thought it would be more than enough to cover my tax bill, 2) I hadn’t fully assumed the responsibility for budgeting for Paul’s taxes, and 3) I was so freaking busy during the fall semester that taxes didn’t even cross my mind.  It sounds naïve, and it totally was, but there you go: sometimes all your hustle gets aimed in one direction.

And now that I’ve unpacked the shame, I’m actually feeling much better about taxes.  It’s interesting: we don’t owe any less money, but I feel much calmer about our situation.  Now that I know better, I can do better.

Another noteworthy observation: if I had known in 2014 how hard it would be to establish myself as a self-employed person, I don’t think I would have had the courage to start.  I really think the deck is stacked against the self-employed; it is so expensive to support yourself and a business on freelance income.  It’s so expensive, in fact, that I have increased my tutoring rates.  I feel much less apologetic about how I run my business now, which is an unexpected gift from this whole experience.  I still want to help students, but I feel more confident about my boundaries.  This is a very good thing.

Freelancing has been trial by fire for me, but I have no regrets.  I’m glad I made the leap.