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How to calculate your self employed salary

self-employed-salary

Calculating Your Self-employment Income

With great power comes great responsibility – something that Uncle Ben pointed out to Peter Parker is quite true for a self-employed person too. It’s a well-known fact among freelancers, self-employed individuals and independent contractors that when you’re your own boss, you have to put that extra effort into running your day-to-day operations and business. Being in control of your business and work means you have to keep track of multiple things simultaneously, something a W-2 employee doesn't have to worry about. It also includes ascertaining your worth as a freelancer and calculating your self-employment income. According to a report, there are 58 million freelancers in the U.S. as of 2021. In addition, it is estimated that by 2028 there will be more than 90 million self-employed individuals in the country. Key highlights:
  • The national payment average for freelancers is $28 per hour.
  • When quoting a price to your clients, you have to consider your business expenses.
  • Freelancers are already getting paid more than 70% of the U.S. workforce.
When calculating your self-employment income, you must use specific criteria when quoting your clients or customers. Before you start working as a self-employed individual or freelancer, it's your job to set a fair price according to your skills and expertise because it's something that can make it or break it for your clients. But, when calculating your work's worth as a self-employed individual, you must consider some minor details. Let's look at five things you can do to get a fair price as a freelancer or self-employed individual.

Table of contents

Researching the market for fair price...Read more

Your skills and expertise...Read more

Factor in your business expenses...Read more

Finding the right price from location...Read more

Calculating your self-employment income...Read more

Researching the market for fair price

When working as a self-employed person, you must analyze your peers and other experienced professionals in the market. Your income is decided by your industry and the clients you are serving, and when quoting your clients, knowing the industry payment standards help. It helps you quote the sweet spot to the customers and charge fairly for your work. Although there are both lowest and highest extremes to payments, and these cases are rare and might vary from client to client. For example, a tiny percentage of freelancers get the highest payment in the I.T. sector because of specific skills. They could work for a company like Google or Microsoft as an independent contractor.

Quick tip

You can join freelancer circles in your city and participate in meet-ups to find the ballpark price.

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Your skills and expertise

Your self-employment income also depends on your skills and experiences. According to a 2019 report from CNBC, freelancers in the U.S. are earning more. :
Your skills and expertise
Considering your skills, you can have a fair idea of what you must charge your clients or customers. For example, a freelance delivery driver will have a different payout from a freelance social media creator. Similarly, a freelance web developer will have a different payout than a freelance business strategist.

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Factor in your business expenses

Whenever you take the first step toward calculating the amount you should quote for your work, you must always factor in your business expenses. This is crucial if you just started as a freelancer and are new to the game. The cost of small items that help doing a particular task can mount up over 12 months and could be pretty significant. For example, if you’re a freelance makeup artist and create Instagram content, you must keep track of your makeup cosmetics cost. First, this will help you give a better price estimate to your client that is also profitable for you, and since these makeup items are your business expenses, you can use them as deductibles during tax filing. The latter part will help lower your taxable income and better understand your self-employment income as a social media influencer.

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Finding the right price from location

You might be juggling between different professions, but you always have to be mindful of the place where you are working. For example, a freelancer working in the San Francisco Bay Area, has an average income of ~$32 per hour, which is 22% higher than the national average. On the other hand, an average freelancer working in Austin, earns ~$26 on average, slightly below the national average. But, surprisingly, you can have larger savings working in Austin because it’s a much cheaper city than San Francisco. A freelancer earning in the Bay Area has a higher income but also has more expenses from living in an area where the average income is much higher than the national average. In addition, the housing rent in the Bay Area is also significantly higher than in Austin. So, when starting as a freelancer in the Bay Area, you should aim to earn at least the average or above average to live a comfortable life.

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Calculating your self-employment income

Once you set your price for the work you do, you can start calculating your self-employment income, which is a combined income from all sources. So if you are working as a freelance digital marketing manager, you'll have to add up all the payments from all your clients.
Calculating your self-employment income
You'll also need to add income from other sources, like capital gains from cryptocurrency investments. But does having a high self-employment income always mean paying a large amount of tax? Well, no. You can use business deductions, like mileage for delivery drivers, internet bill if you work from home, to lower your taxable income as a self-employed person. However, finding all qualifying deductions in your bank statements is time-consuming, and you can use A.I.-powered tools like FlyFin to calculate deductibles automatically.

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What’s FlyFin?

FlyFin caters to the tax needs of freelancers, gig workers, independent contractors and sole proprietors. But anyone can file taxes through FlyFin! FlyFin tracks all your business expenses automatically using A.I. to find every possible tax deduction. Then, our CPA team files a guaranteed 100% accurate tax return for you – to save you a couple of thousand dollars and a ton of time on your taxes. Download the FlyFin app and have your taxes filed in less than fifteen minutes, saving time and more money on your taxes than last year, guaranteed.
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