Lindsey Schuette
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10 Types of Risks Freelancers Face and What to Do About Them
Last updated: June 27, 2022
Lindsey Schuette
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10 Types of Risks Freelancers Face and What to Do About Them
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Being a full-time freelancer comes with a long list of enticing perks. You can work from anywhere, ditch the suit and tie, set your hours, and be your own boss. However, the positives do come with a few risks. Almost everything – from paychecks to taxes – works differently for freelancers, but that doesn’t mean you can't make this a successful career. Read about some of the risks and learn how to tackle them.

Tax Surprises

Freelancers can be hit with some big, surprising tax numbers if they aren’t careful. Pay taxes quarterly to avoid a large payment or penalties in April. Consider the self-employment tax and take into account that your tax amount owed will vary throughout the year if your income varies.

A Vulnerable Situation

Do you need to consider forming an LLC if you think there is a good reason your work will need to be protected from potential lawsuits? Forming an LLC gives you some legal protection and can also give you some tax benefits. Talk with a lawyer to see if this is the best choice for you.

Lack of Health Benefits

Freelancing generally means that you won’t be getting that automatic option to enroll in health benefits like full-time company employees do. You’ll have to get out there and buy your own health insurance plan (or plans). Take your time and shop around to find what coverage is best for you. If your spouse or partner has insurance through their work, see if getting on their plan makes sense. Many end up stuck with high deductible plans, so make sure you know what you're on the hook for in the case of a medical emergency.

Lack of Insurance Benefits

Just like health insurance, you'll no longer have access to those group policies you may otherwise. That includes things like life insurance and accidental death & dismemberment insurance. If you have anyone dependent on your income, make sure you know how you're protecting them should the worst happen.

Failing to Deduct Properly

Doing your own taxes can be a headache! Freelancers need to check out what expenses they can deduct when it comes to taxes. Keep track of all expenses or purchases and see which are deductible. Tax laws are often in flux from year to year, so make sure that you're up-to-date on the most recent codes.

Dry Bank Account

It’s a good idea for everyone to have a rainy day fund, but this is especially true for freelancers since their income isn’t steady. Save anywhere from 6-10 months' expenses if you’re a freelancer. It may not be easy, but it’s better to have a big safety net than have to stress if the unexpected should arise, as it so often does.

Messy Audit

It can be hard to be your own accountant – especially if numbers aren’t your thing. To stay out of trouble in the event of an audit, track all expenses. This means may look like keeping spreadsheets, placing all receipts in a box, and having a bank account you only use for your business. Have a folder in your email account that's specifically for receipts or anything tax-related.

Low or No Payments

Whether you have been freelancing for 20 years or are just starting out, knowing your worth and getting paid for it can be tricky. Do your research to find a rate that makes sense for your skill and expenses, then make sure you are clear with clients. Set expectations – due dates, scope of work, and communication requirements – and make sure to send an invoice.

Forgetting About Retirement

Don’t just plan to freelance until the day you die – save for retirement! Being your own boss means you should be taking care of yourself too. Consider getting something like a one-participant 401(k), SEP IRA or simple IRA to save up for those sunset years.

Becoming Stagnant

Freelancing can't be all about actually doing the work you were hired to do. You need to spend time making new business connections, gaining relevant skills, and marketing yourself. Don’t fall into the trap of getting too comfortable with old clients – be proactive and ensure you always have new business coming in!

You can claim $5,000 of no-cost insurance, courtesy of Jobcase and serviced through Avibra. And then earn up to $11,000 total for your good habits. That includes life, accidental death & dismemberment and accident medical insurance.

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