Why is my target revenue higher than my profit goal?
In order to hit your profit goal, the freelance calculator takes into account all the expenses you have to pay in addition to your own profit. In order to take home the amount you've requested, you have to make more money to cover costs like taxes, fees, and other business expenses.
How much should I try to save each year in short-term savings?
Aim to save at least 10% to 15% of your income in a regular savings account. This can be used for emergency funds, short-term goals such as vacations or vehicles, or even long-term savings goals like a down payment on a house.
How much should I try to save each year for retirement?
Aim to save for retirement by contributing to a tax-advantaged retirement account such as an Individual Retirement Account (IRA) or a Simplified Employee Pension (SEP) IRA. The contribution limits for these accounts vary each year, but as of 2023, the contribution limit for an IRA is $6,000 and for a SEP IRA is 25% of net self-employment income up to a maximum of $61,000. We recommend you aim to contribute as much as you can reasonably afford to these accounts in order to take advantage of tax benefits and ensure you have enough savings for retirement.
Why should I start with my target profit?
When calculating your freelance rate, it's important to consider your business profit very first. Freelancers who factor in expenses and market factors before they focus on profit, often end up struggling to thrive financially.
By inputting your profit first in this calculator, you're following the "profit-first" busines strategy and have a higher chance of growing your revenue over time.
What's the difference betweeen "work hours" and "billable hours"?
It's important that you calculate your freelance rate based on the billable hours you work. Billable hours are the time you spend working on projects that actually generate revenue for your business.
Other, non-billable hours include administrative tasks like accounting, bookkeeping, or even marketing.
You can learn more about billable vs. non-billable work below:
How many days off should I plan for?
In the United States, there are 10 federally recognized national holidays. As a freelancer, you may choose to plan for these days off or work through them.
You'll also want to account for vacation time, sick days, and—if your business can support it—even just a few extra days each year you're not planning on taking off. Things come up.
What are credit card fees and how are they difference from credit card interest?
Credit card fees are the charges that credit card companies impose on merchants for processing transactions. When you accept payment via credit card, the payment processing company charges a fee for processing the payment. This fee is usually a percentage of the transaction amount or a flat fee per transaction, and it varies depending on the credit card company and the payment processing company.
For example, if you charge $100 for a project and the credit card processing fee is 2.9%, then the credit card company will charge you $2.90 for processing the payment. In some rare cases, your client may pay these payment processing fees but typically, you want to factor them in when calculating your rate.
Credit card interest, on the other hand, is the cost of borrowing money on a credit card. If you uses a credit card as a freelancer to finance your business, you will be charged interest on the balance that you carry over from month to month. The interest rate varies depending on your credit card company and creditworthiness.
What are marketplace fees and how do I calculate them?
Freelance marketplace fees are fees charged by freelance platforms or marketplaces for using their services to find work and connect with clients. These fees can vary depending on the platform and the type of service being provided.
Below are some examples of the most common freelance marketplaces and their fee structures. If you're estimating your freelance rate today, you can use the values below to get started. If you're trying to be more precise, consult with the marketplace you work on for exact numbers.
Upwork: Upwork charges a sliding fee based on your earnings with a client. The fee ranges from 5% to 20% depending on the total amount earned from a client.
Fiverr: Fiverr charges a flat fee of 20% of the order value for orders up to $500, and a 5% fee for orders over $500.
Freelancer.com: Freelancer.com charges a fee based on the your membership level. The fee ranges from 10% to 20% depending on the membership level.
Guru.com: Guru.com charges a fee based on your membership level and the type of project being completed. The fee ranges from 4.95% to 8.95% depending on the membership level and the project type.
PeoplePerHour: PeoplePerHour charges a flat fee of 20% on the your freelance earnings.
What sales fees will I encounter as a freelancer?
In addition to credit card or marketplace fees, you may be subject to more sales fees as a freelancer. These might include:
Foreign transaction fees: These fees may be charged by payment processors when a transaction is processed in a currency other than your local currency.
Chargeback fees: These fees are charged by payment processors when a client disputes a transaction and you are required to refund the payment.
Payment processing fees: These are fees charged for processing payments via a payment gateway, such as PayPal or Stripe. These fees occur in addition to credit card fees.
Finder's fees: These are fees you might pay to fellow freelancers, former clients, or others who refer business to you on a regular basis.
What kinds of insurance should I include when factoring my freelance rate?
Below are some types of insurance that freelancers should consider. These are not all required to run a successful freelance business. We've bolded the most common.
- Professional Liability Insurance (Errors and Omissions Insurance)
General Liability Insurance
Business Property Insurance
Business Interruption Insurance
Cyber Liability Insurance
Workers' Compensation Insurance
Auto Insurance (if using a vehicle for business purposes)
What counts as advertising and marketing expenses for freelancers?
Advertising and marketing expenses are expenses you incur to promote your business, build your brand, and attract new clients. Here are some examples of advertising and marketing expenses that may be deductible for tax purposes:
Website design and development costs
Social media advertising costs
Online directory listing fees
Business cards, brochures, and flyers
Advertisements in industry publications or online forums
Sponsorship of industry events or conferences
Promotional items such as pens, t-shirts, or stickers
Search engine optimization (SEO) services
Pay-per-click (PPC) advertising costs
Email marketing software and services
Public relations and media outreach costs
Video production and editing costs
Photography and graphics costs
Market research and surveys
Trade show and exhibition fees
What should I track for legal & accounting expenses?
Here are some examples of legal and accounting expenses that may be deductible for tax purposes and should factor into your freelance rate calculation:
Legal fees for drafting or reviewing contracts, agreements, or leases.
Fees paid to a tax professional for filing taxes, bookkeeping, or preparing financial statements.
Fees for business formation or incorporation services.
Legal fees for trademark or copyright registration or protection.
Fees for obtaining licenses and permits necessary for conducting business.
Fees for business-related software and online services such as accounting software and legal document services.
Fees for consulting with an attorney or accountant regarding business-related matters.
Fees for debt collection services.
Fees for dispute resolution services.
Fees for drafting employee contracts or other legal documents related to employment.
Do all U.S. freelancers have to pay federal taxes?
Yes. All U.S. freelancers are required to pay federal taxes on their income. Freelancers are considered self-employed and must pay self-employment taxes, which include Social Security and Medicare taxes. These taxes are paid on the freelancer's net self-employment income, which is their gross income minus deductible business expenses.
All U.S. freelancers must also file an annual federal income tax return and pay income tax on their net income after deducting business expenses and any applicable tax credits. The amount of income tax owed depends on the freelancer's income, filing status, and other factors.
Additionally, freelancers may be required to make estimated tax payments throughout the year to avoid underpayment penalties. These estimated tax payments are based on the freelancer's projected income and tax liability for the year.
What if I'm not a U.S citizen, but I have U.S. clients?
The tax laws and regulations for non-US citizens may vary depending on several factors, including the type of visa you hold, the amount and source of your income, and any tax treaties that may exist between the US and your home country. It's important to consult with a tax professional who has experience with non-US citizens to determine your tax obligations and any potential tax implications.
How does my filing status impact my freelance rate?
Your filing status can impact the amount of taxes you owe on your freelance income and, therefore, your after-tax earnings. For example, if you are married and filing jointly, you may be eligible for certain tax deductions and credits that can reduce your tax liability and increase your after-tax earnings. On the other hand, if you are filing as a single taxpayer, you may not be eligible for some of these deductions and credits, which could result in a higher tax liability and lower after-tax earnings.
It's important to understand how your filing status impacts your tax liability and to factor this into your pricing and budgeting as a freelancer. You may want to consult with a tax professional to determine the best filing status for your situation and to ensure you are taking advantage of all available tax deductions and credits.