While there are many benefits of being self-employed, which is why many individuals decide to work for themselves over taking up a job. However, there are still many challenges in the life of a freelancer. It is important to bear in mind that with great power comes great responsibility. When working for yourself, it is critical to managing one’s finances effectively, and that includes filling taxes and investing a part of your income for future needs.
A salaried individual, who many may argue leads a mechanical and programmed life, yet enjoys a certain amount of security. For a salaried individual income tax is deducted at source from the salary by the employer on a monthly basis and deposited with the tax authorities. Companies also provide other benefits to staff on their payrolls including Medical Insurance Cover, Employee Provident Fund, Employee Stock Options and other such benefits that make managing finances a lot easier.
Managing one’s taxes and investments is a critical aspect that every freelancer has to give time to so as to ensure they are not left shortchanged in the long run. As a freelancer or individual consultant, one is primarily on their own in many ways and most importantly when it comes to matters related to finance. So when you decide to start working for yourself, ensure that you have given enough thought to various ways you can manage your taxes efficiently and also save for the future.
1.Make regular tax payments – It is a good idea to be diligent about your taxes from the start. For any payment, you receive for your work, keep aside a percentage for your saving and transfer the applicable tax on the same to a different account so as to ensure you do not end up spending the tax part of your payment inadvertently. Also, be aware of the last dates for various payments and filing so as to ensure that you have enough funds kept aside for that, and timely payments will also ensure you do not end up paying substantial penalties and interest on delayed payments/filing.
2. Record your expenses – As a self-employed individual, the income tax authority allows you to book many costs as your business expenses which are then deductible from your gross income to calculate your taxable income. It is wise to know what these expenses are and to ensure you keep records and receipts of all such expenditures to ensure effective tax planning. This includes your office rent, any salary paid to any skilled or unskilled worker hired, office running costs like electricity, maintenance, Food, Business Promotion, travel expenses, etc., depreciation on any movable assets purchased for the running of the business including computers, printers, any other office equipment.
3. Medical cover – Have you thought about the financial uncertainty that any illness will bring to your loved ones in case you are unable to continue your work for a short or longer period? Even working as a freelancer, you can ensure safety and security for your family and keep health worries at bay, by investing in a good medical insurance product. It is a worthwhile investment to cover any unforeseen health issues that may come up; that require massive medical expenditure. There are many competitive products available in the market now that give good medical cover for any known or unknown illness for not just the insured but also their family.
4. Saving smartly – We all know the importance of saving for the rainy day. While investing a fraction of one’s earning in high return saving tools is good for growing your income, but it is equally important to save for the long-term in low-risk products like PPF, Life Insurance, and Government Approved Bonds. These not just help you save but also are tax deductible, and money invested in these tools is deducted from one’s taxable income under section 80C. Research about the right saving tools for your needs and invest in a product that helps you not just save your income but also reduces your tax liability.
5. Understand what ‘Book Keeping’ means and do it as a simple process – Bookkeeping may sound to some as jargon, and something you may feel might take a significant amount of your resources and time. Well, that’s, not the case. Through a simple process that you find easy to follow ensure you keep a track of all invoices issues, receivables, payables, expenses, etc. After all, as a freelancer both bright days and the dark days are yours to deal. Bookkeeping will not only help you save on taxes and be efficient but also help you project growth with a simple Profit and Loss calculation. It may also assist in some ways for you to identify key areas where you are excelling and the trends in the professional market on the quantum of work and type.
As a freelancer, if you wish to drive growth, ensure you have a balance between the professional and personal expense with a simple custom process to save on taxes. Intelligent and straightforward processes will always lead to greater efficiency and profitability.
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of the publication