Happy Holidays!

Here's hoping that you and your families have a safe and happy holiday!

The Freelancers Best Friend

I talked a lot about a SEPP or SEP-IRA in my first post. I also posted a poll and asked how many folks took advantage of a SEP-IRA, and even if they knew what one was. To date, 2 people said that they didn't know what a SEP was, 2 people said that the didn't contribute to a SEP, 1 person said they contributed a little and 1 person contributed the maximum amount allowed. Since the one person who contributed the maximum amount was me, that means that the majority of everyone else who responded are unaware of the benefits of a SEP-IRA.

OK. So what is a SEP? Without exaggerating brothers and sisters, it's your best friend. Well, only if you like keeping the money you earn that is.

"An S or C corporation, an incorporated partnership or a LLC electing to be taxed as a corporation (i.e. the agencies we work for) pays the business owner (that's you Sparky!) a W-2 salary. In this situation, the annual SEP IRA contribution can be between 0% to 25% of the owner's W-2 salary up to the SEP IRA contribution limit. SEP IRA contributions are generally 100% tax deductible as a business expense."

At the end of the year AFTER your accountant (please tell me you have an accountant!) calculates your business deductions, and how much you have paid into your quarterly taxes, you are left with your net profit (pre-tax earnings). You now have to pay Federal and State income tax on this amount. Or do you? Not if you contribute to an IRA.

If you have a regular IRA you are limited to a maximum contribution of $5,000 (for 2008 - the same amount as a Roth IRA). With a SEP you can contribute up to 25% of your pre-tax earnings.

Kind of a no-brainer here kids. Obviously being able to contribute up to 25% of your pre-tax earnings is far more advantageous than being limited to $5,000. Bottom line: a SEP-IRA can save you hundreds, if not thousands of dollars in annual taxes as well as providing you with substantial retirement nest egg. And with the uncertainty of the future of Social Security, your retirement should be a very real concern.

As stated previously, SEP-IRA contributions are based on income earned via W-2s, not 1099s. With income earned from 1099s you are limited to Roth and regular IRA contributions.

You can find more info on SEP-IRAs here:
wikipedia SEP-IRA
SEPIRA.com
wikipedia ROTH 401K

The Real Freelancer vs. The Fake Freelancer

Over the years I noticed that there are two kinds of freelancers. What I like to call "fake freelancers" and "real freelancers". Fake freelancers are people who leave or lose their staff position, and only freelance temporarily until they can find another staff position. A real freelancer won't take a staff position even when it's offered to them on a silver platter.

I started out as a fake freelancer until I came to the realization that I was never suited to working on staff. Some people love working freelance and others can't stand it. Freelance is certainly not for everybody, and it does take a bit of getting used to.

Right now our market is flooded with fake freelancers who have recently lost their staff positions. Many of the big agencies have conducted layoffs, and it looks like this trend will continue into next year. This is bad news for the majority of real freelancers who are having a hard time finding work as it is.

I know more than a few real freelancers that are actively looking for a staff position, and who would have never considered doing so before. Meanwhile, the fake freelancers who can't find work anywhere may be resigning themselves to the fact that becoming a full-time freelancer is their only option. When the economy rebounds it's going to be very interesting to see where both the real and fake freelancers end up.

Of course, as soon as the economy rebounds I'll hopefully be back to work and won't have to fill my time with this dumb blog anymore!

The Worst Things About Being A Freelancer

So what are the worst things about being a freelancer? I think we all know the number one answer to this one...

Not being paid in a timely fashion. This is, in fact, the bane of our existence, and every freelancer knows just how bad it can get. Your bills are piling up, your mortgage is due and you're dipping into your 401K savings to make ends meet. Week after week you check your mailbox only to find more junk mail. Maybe your invoice has been forgotten on someone's desk, caught in an endless loop of red tape, or was just "lost". Of course, none of this matters to the creditors who come banging on your door.

April 15th. The worst day of the year, and the second worst thing about freelancing. The days leading up to April 15th aren't easy either. Digging out old receipts, organizing bank statements, calculating mileage and trying to do all the bookkeeping is always a nightmare. The only thing worse is sitting in your accountant's office, listening to his fingers total up the damage. When he looks up and reads off how much you owe, be sure to have a brown paper bag ready to keep yourself from hyperventilating.

Working at "freelance stations." You've just been given a work order to crank out 8 high-res mechs in less than 3 hours. Unfortunately, the Mac Mini you're working on is 3 years old, has the minimum amount of RAM possible, and outdated software that is incompatible with the rest of the creative department's newer software. The numerous crashes, freezes and font conflicts make meeting any deadline impossible, which in turn makes you look like a slow poke. Did I mention that your computer is hooked up to the only scanner in the building? "Hey, I need you to scan in these 57 sketches for me asap. And how are those mechs coming along?"

Being devalued. You have years of experience, great ideas and a broad creative skill set. Oh, by the way, no one cares. You don't need any of those things to shift a ® one mouse click to the left. Unfortunately, the bulk of freelance work does not require a lot of creativity. On those rare days when you get to actually design a logo or a layout... Well brothers and sisters, those are the good days.

Did I miss anything? Maybe. Now that I think about it, if I could get paid in a timely fashion, that would offset all of the other cons listed above. Ahhhhh, I can dream, can't I?

The Best Things About Being A Freelancer

You know, I never wanted to be a freelancer. When I left my last staff position, I was certain that I could easily find another job. I figured that if I couldn't find a staff position, then I could always freelance - as a last resort. After all, who would voluntarily forfeit "job stability", health benefits, paid time off and a fancy cubical. I never found that staff position. And now, over 7 years later, my views about freelance have changed dramatically.

So what are the best things about being a freelancer? While it's not all a bed of roses, there are a number of reasons why some folks prefer freelancing over a staff position.

In no particular order...

The freedom to work with different agencies. The variety of working with different creative teams and on different brands really help to keep the creative juices flowing. The constant challenges of jumping from one agency to another reinforce the fact that I'm running my own business.

No more performance reviews. One of the most awkward, humiliating and wholly unnecessary aspects of being on staff... the performance review. Even after busting your ass all year long, your boss will inevitable find that there is "plenty of room for improvement" on your end. So why didn't your boss bother to mention all of these shortcomings 6 months ago? Having to endure this formulaic slap in the face just to receive well-deserved raise? No thanks.

Being your own boss. Nuff said.

Leaving work at work. When I was on staff I used to leave work at 9 or 10 o'clock at night. I'd go home and lay awake in bed while gritting my teeth as I obsessed over whatever project I was working on. My dentist and I are both glad those days are long gone.

Working from home. FTP transfers, video conferencing, iChats, and emails all while festooned in your pajama bottoms.

What are your favorite things about being a freelancer?