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Calculating Your
Self-Employment Income
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Self-employed
Freelancer, independent contractor, etc
Salaried employee
Full-time or part-time W-2 employee
Business owner
LLC, S corp or partnership
How to know what you should be making and how much tax to pay?
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 needing to calculate self-employment tax.
There are 76.4 million freelancers in the U.S. as of 2024 and is estimated to be over 90 million by 2028.
Key takeaways:
- 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.
Table of contents
Researching the market price rates
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 average industry price range is very important .
For example, a tiny percentage of freelancers might charge the high hourly rates in the I.T. sector because of specific skills, or 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.
Your skills and expertise
Your self-employment income also depends on your skills and experiences. You can get away with charging a higher rate if you have the skills and experience to back it up. This is also dependent on the industry you work in.
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.
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 add 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 the costs like buying makeup products, brushes and a ring light. This will help you give a better price estimate to your client that is also profitable for you.
And since these items are your business expenses, you can use them as deductibles during tax filing. Doing this will help lower your taxable income and better understand your self-employment income as a social media influencer when it comes time to make your quarterly tax payments.
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 ~~$36.51 per hour, which is 45% higher than the national average.
On the other hand, an average freelancer working in Austin, earns ~$21.10 on average which is 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.
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. A 1099 tax calculator can help you do this.
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 find your deductibles effortlessly.
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.
Expert tax CPAs ensure 100%-accurate tax filing
A.I. finds every tax deduction, eliminating 95% of your work
On average users save $3,700
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