Do you know exactly what your expenses are as a freelance writer?
It’s surprising how few freelancers can answer this question with any precision. That may be, at least in part, due to a confusion of deductible expenses – that is the money you spend that can be deducted from your gross income when figuring your taxes, and what I’ll call living expenses.
Not surprisingly, it’s not always clear, but the general rule is that if it’s something you use for business it’s a business expense; if it’s something you don’t use for business it’s a living expense.
So my business expenses include:
- A portion of my rent based on the size of my office compared to the rest of the house
- A portion of my utilities
- My computer expenses – both things like internet charges and the equipment itself. Also includes domain names, cost to techs, web space, and such
- A portion of my mileage and of the car itself
- Meals for clients
- Education for my writing business
- Books and magazines
- Ink, paper, envelopes, pens, pencils, notebooks and the like
- Business cards
- Business travel
- Business taxes
- Wages I pay
My living expenses are all the rest, but it’s important that you track those too. Thus, in addition to the above I know how much I spend on:
- Dining that isn’t business related
- The rest of the rent, car, utilities, etc.
- Medical expenses
- Furniture that isn’t in the office
- Money spent on my garden
- Gifts given
- etc. etc. etc.
My experience tells me that I need to keep track of all my money so I know what I’m earning, and what I’m spending and what I’m saving. Knowing my account balances keeps me out of vagueness.
I keep track of my money using Quicken Home & Business 2009 because I can’t add and subtract reliably. Quicken and other programs like it have some expenses set up, but make it easy to create your own list. When, for example, I pay my internet provider, that amount gets entered under business expense/internet. At the end of the year I take all the info to my accountant who works his magic.
Knowing your expenses, both business and personal, makes it much easier to figure out what you need to charge to not only pay your way, but with a profit as well.
You may also want to read What is a Billable Expense and Tracking Freelance Writing Billable Hours and Expenses.
Image from http://www.sxc.hu