The workplace landscape has dramatically changed since the COVID-19 pandemic, with the number of freelancers rapidly increasing. Thanks to the surge of remote and hybrid work, gig workers are now commonplace. Indeed, in 2023, there were an estimated 64 million people doing freelance work in the United States, according to Statista.
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Here are some common mistakes freelancers make.
Not Being a ‘Business’
Stoy Hall, CFP, CEO and founder of Black Mammoth, said that this is one of the common mistakes he sees freelancers make.
“They do not take the time to set up LLCs, separate bank accounts and truly run their ‘freelancing’ like a business,” said Hall. “I’ve seen too many talented freelancers treat their gigs like a hobby more than a business.”
And not setting up an LLC or a separate business entity is a big no-no, he said — it’s not just about looking legitimate; it’s about being prepared for the tax advantages and liabilities protections these structures offer. “Think about it: The moment you separate your personal assets from your business, you safeguard yourself against potential business-related lawsuits,” he added.
In addition, not having a separate business bank account is a recipe for disaster come tax season or when you need to track your cash flow accurately, added Hall.
“It’s crucial to have this division, because it not only simplifies your accounting but also strengthens your case with the IRS that you are indeed running a business, not pursuing a hobby,” said Hall.
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Not Separating Business Activities From Personal Ones
Another mistake is to not keep your “business activities” separate from your personal activities, said Hall, noting that that while there might be some overlap, if you do integrate too much, then you will not be able to take full advantage of the tax code.
“If you’re not careful to keep your business and personal expenses distinct, you’re setting yourself up for a tax headache,” he said. “Mixing these can lead to missed deductions or, worse, red flags with the IRS. And who wants an audit? No one.”
Instead, by categorizing your expenses meticulously and using separate accounts, you not only streamline your tax filing but also maximize your deductions.
For instance, make sure utilities, home office expenses and equipment are all documented and justified as business expenses, he noted.
“This level of discipline is essential for taking full advantage of the tax code and reducing your taxable income legally and effectively,” he said.
Not Brand Building
As a freelancer, you are your brand, said Hall, adding that, in turn, you should make sure you all you can to build yourself up, whether it’s with marketing efforts or speaking engagements, for instance.
“Your name is your empire, and every interaction you have builds or busts that empire,” he said. “It’s about leveraging every platform you have — from LinkedIn to local networking events — to promote your skills and services.”
He also added that investing in good marketing, be it through social media or your own website, pays dividends. “And let’s not forget the power of word of mouth; your reputation can carry you far,” he added.
In other words, your brand is what sets you apart in a sea of freelancers.
“It’s your responsibility to cultivate it, protect it and showcase it, ” he said. “It’s not just about being seen; it’s about being remembered for the right reasons.”
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This article originally appeared on GOBankingRates.com: I’m a Financial Advisor: Here Are 3 Common Money Mistakes Freelancers Make
Source: I’m a Financial Advisor: Here Are 3 Common Money Mistakes Freelancers Make
