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Here are three common money mistakes freelancers make
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The workplace landscape has changed drastically since the COVID-19 pandemic, with the number of freelancers increasing rapidly. Thanks to the rise of remote and hybrid work, gig workers are now common. In fact, in 2023, an estimated 64 million people were 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 Mammothsaid this is one of the common mistakes he sees freelancers make.
“They don’t waste time creating LLCs, setting aside bank accounts and actually running their ‘freelance’ like a business,” Hall said. “I’ve seen many talented freelancers treat their work more like a hobby than a business.”
And not creating an LLC or a separate business entity is a big no-no, he said — it’s not just about appearing legitimate; it’s about being prepared for the tax advantages and liability protections these structures offer. “Think about it: the moment you separate your personal assets from your business, you protect yourself against potential business-related lawsuits,” he added.
Plus, not having a separate business bank account is a recipe for disaster come tax time or when you need to monitor your cash flow accurately, Hall added.
“It’s crucial to have this division because it not only simplifies your accounting, but it also strengthens your argument to the IRS that you are truly running a business and not pursuing a hobby,” Hall said.
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Not separating commercial and personal activities
Another mistake is not keeping your “business activities” separate from your personal activities, Hall said, noting that while there may be some overlap, if you integrate too much, you won’t be able to make the most of the tax. code.
“If you’re not careful to keep business and personal expenses separate, you’re setting yourself up for a fiscal headache,” he said. “Mixing them can lead to lost deductions or, worse, red flags with the IRS. And who wants an audit? Nobody.”
Instead, by meticulously categorizing your expenses and using separate accounts, you not only streamline your tax return but also maximize your deductions.
For example, make sure utilities, home office expenses and equipment are documented and justified as business expenses, he noted.
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“This level of discipline is essential to taking full advantage of the tax code and reducing your taxable income legally and effectively,” he said.
It’s not brand building
As a freelancer, you are your brand, Hall said, adding that in turn, you should do everything you can to develop yourself, whether that’s with marketing efforts or speaking engagements, for example.
“Your name is your empire, and every interaction you build makes or breaks 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, whether on social media or on the website itself, pays dividends. “And let’s not forget the power of word of mouth; your reputation can take you far,” he added.
In other words, your brand is what sets you apart in a sea of freelancers.
“It is your responsibility to cultivate it, protect it and display 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. with: I’m a Financial Advisor: Here Are 3 Common Financial Mistakes Freelancers Make