Taxes: The Difference Between Being an Employee vs. Being A Contractor / Freelancer

A friend that started working as a Freelancer in 2015, recently asked me for a general rundown regarding how a Freelance / Contractor life will change his U.S. tax situation.  I figured this info could be helpful to others, so here is the response I sent.  Keep in mind, I'm not an accountant or a lawyer, so I would advise you to fact check anything below on your own, but hopefully it'll give you some cursory knowledge to draw from.

The main thing that changes between being an employee and being a contractor (from a tax POV) is that taxes are not taken out of your pay on a regular basis.  What this means is that when you file your taxes in April, you’ll end up owing more money, because instead of paying these taxes all year long (as an employee, your employer would withhold state and federal taxes from your paycheck and pay them on your behalf) you pay them all at once* (at tax time).

The other thing that’s slightly different is that instead of receiving a W-2, as you would from an employer, you’ll receive a 1099's at the end of the year.  A 1099 is basically the contractor equivalent of a W-2, which reports how much you made for the year and how much tax was withheld (for a contractor, usually $0 is withheld, which is why you’ll owe so much money in taxes).  Anybody that pays you over $600/yr as a contractor is supposed to send you a copy of the 1099 that they submit to the IRS, reporting how much money they paid you.  This is so the government is aware of how much you’re making; they place the burden on the businesses paying you to report these amounts so they can keep tabs without relying solely on you.

In addition to collecting your 1099’s, you’ll also have the opportunity to report any other earnings for which you did not receive a 1099.  Some companies may be late in getting you a copy of the 1099 or may not file them.  If you don’t report the income from these jobs, the blame falls on you.  The IRS will not be happy if they receive a 1099 from somebody reporting that they paid you money and you did not include this income in your taxes.

In general, your tax burden will be the same as somebody that was working as an employee, the difference is that you’ll have to pay your taxes as a lump sum instead of having part or all of your taxes withheld from your paycheck every pay period.  So start saving accordingly, knowing that you’ll need to pay about 30-50% of your income back in taxes.

It is important to start tracking expenses and receipts that are related to your freelance life, because you can claim these as expense deductions on your tax return and they lower your pre-tax income.  Essentially you become a ‘sole proprietor’ if you’re working as a freelancer/contractor.  Income and expenses from a freelance/contractor business are filed on the IRS form 1040 'Schedule C.’

If you haven’t before, I would suggest doing your taxes using tax software, or having them done professionally, as it is nearly impossible to do it by hand as a contractor/freelancer.

*Note from above where I said once:  If you meet a certain threshold for this type of income, you’ll actually be required to pay taxes 4 times a year.  This is to make sure that you’re spreading out your tax liability for the year, and to make sure the govt gets it’s money.  If you need to make quarterly payments, it will start the year after you hit the threshold.  For instance, if you make enough this year, you’ll have to start paying quarterly taxes in 2016 (the first one of which will be due the same time as your 2015 annual taxes - in April 2016).  The quarterly form you may need to file is 1040-ES (stands for estimated taxes).

Here are some websites that I find useful for this type of stuff:

SBA:

https://www.sba.gov/category/navigation-structure/contracting

NOLO: (they publish books, but frequently if you google a tax related question you’ll end up on their website, as they have a lot of good free info):

http://www.nolo.com/legal-encyclopedia/taxes

Email Etiquette: Guidelines and Blunders - Part 4

I continue with my series on guidelines to follow and blunders to avoid when writing professional email.  If you missed the earlier posts, you can find them here:  Part 1, Part 2, Part 3.

Now that you've written most of the content of the email, let's turn our attention to the last few guidelines to follow before hitting that big 'send' button.  The advice on these last pieces is similar to the advice I gave on the opening salutation/address: there are no concrete rules to follow here, so you'll want to quickly consider your email and the audience, in order to come up with something that works.  

Email Guideline #6:
Signing Off

After the body of your email, add a short sign-off.  By "Sign-Off" I'm talking about a last sentence at the bottom of the email.  If you requested somebody get back to you, or you asked for information, you could write something like: "When you have a chance, please let me know what you think."  If you think your email may spark questions or need clarification you can add: "If you have any questions, or need any other info, please let me know."  Or, if you were thanking somebody for their help on something you could write: "Thanks again for your help." or "I appreciate the quick turn-around on this, it really helped my team."  While these may seem like cookie-cutter, generic sentences (and they are), they are simply examples to get the juices flowing - feel free to add your own voice.  Just make sure your voice matches the tone of the email, and remember that, in general, you are going for a "professional and friendly" tone.  

Email Guideline #7:
Your Closing Salutation

After your sign-off sentence, add your closing salutation followed by your first name.  Here again, remember your audience and your intended tone.  For example, a "Your beloved," "Love," "Thinking of you," or "Peace out," probably won't come into play in a professional email (for obvious reasons).  Some standards in the business world include: "Sincerely," "Thanks," "Best," or "Regards,".  You may consider having one that you use as your standard, then deviate from it when you feel the need to add an extra touch.  For example, using "All the best," on occasion or "Thanks again," when you are saying thanks and mean it (as opposed to just using it as a default goodbye).  

If you are in the middle of a back-and-forth, an extra closing can start to feel stiff - even more, overuse could start to render your initial "Thanks," as an even more meaningless formality.  For this reason, feel free to go down to just your first name or place a "-" in front ("- Mark", in my case).  Just be sure to add some sort of salutation to identify who sent the email (some email clients are better than others at reporting who said what).

In some cases of comfort, you may decide you want to go outside the norm for your default sign-off.  This is fine, as long as you consider your existing relationship with your recipients.  For example, if you tend to default to "Stay fantastic," with your co-workers, you may want to re-evaluate before sending an email to somebody outside your company with that closing.

One quick note on exclamation marks in place of commas for closing an email:

The use of exclamation marks in closings has taken hold - especially in the use of "Cheers!", "Thanks!", "Thanks again!" or "Thanks!!!!!!!"  I have one friend who says you can tell how much she appreciates you by how many exclamations marks she adds to her "Thanks!"  While this has become a convention for intra-office email, you may (yet again) want to consider your relationship with the recipient before going overboard with such exuberance.  In some work environments an exclamation mark is rather expected, and a comma in your email can seem terse by comparison.  If you are in an atmosphere like this though, you will quickly come to realize it by observing those around you, and nobody will hold it against you if you were initially a bit formal.

Email Guideline #8:
Your Signature

The last thing you should add to your email after the closing is your signature.  This can definitely be a default, and all email clients/providers should have a feature for you to set up an auto-sign feature.  It should (at the minimum) include your full name and your email address.  If you want to give people the option to reach you by phone or if you work in a large office, add your extension/phone number.  If you work at a large company, add your department and title.  If you are an independent contractor, freelancer, or you are sending email outside the company, consider adding your URL so people can learn more about you and your services. Depending on the nature of your business and the content of the email, adding a social link (i.e. your Twitter handle), may also be appropriate.  If you are soliciting outside business, it may be appropriate to include your logo or a SMALL call-to-action (i.e. "More info at: www.example.com").

The only big guideline to consider here is that (yet again) if you go outside the box, make sure it is for a reason and that it is appropriate.  Besides this general guideline, just ensure that your signature is formatted nicely and isn't full of frivolous copy, images, or random characters.

Now that we've gone over almost all of the general guidelines, you should have a good idea how to write successful professional and business-related email.  After this, we'll turn our attention to proofreading, and start to discuss email blunders that you should avoid.

Comments?  Feel free to share below!  

Resource: Learn Excel and Master 5 Essential Features

Excel is an essential business tool.  It's a little daunting when you first open up the program, but if you don't force yourself to learn it, you may find yourself lacking a skill that almost everybody will expect you to know.

With that in mind, I want to share a new course that my good friend, Conlan O'Rourke, just created on Skillshare's platform: "Learn Excel and Master 5 Essential Features."

Conlan's course walks through a simple project (creating a wedding guest list) to help students obtain a fundamental understanding of Excel's essential features in a low-pressure environment.

I just finished the class (quite possibly the first to do so) and my unbiased opinion is that it holds some very valuable information for anybody that's uncomfortable with Excel. 

Conlan goes over simple navigation in Excel, then dives into formatting/freezing panes, sorting and filtering data, using simple formulas, and creating pivot tables for reporting/analyzing data.

If you're interested in leveling up your Excel knowledge, check it out.

If this is your first paid class on Skillshare, use this link and get $10 off: http://skl.sh/1cCkSDz

Here's his intro video:

Learn Excel and Master 5 Essential Features

An Online Skillshare Class by Conlan O'Rourke

Email Etiquette: Seth Godin's Mass Email Failures

Since we've been on the topic of email etiquette here at Young Entrepreneur Guide, I wanted to share a recent post from Seth Godin's blog entitled "Eight Email Failures."

If you don't read Seth's blog regularly, I would suggest you head over to his blog and subscribe.  While not every post of his is genius, he frequently includes valuable nuggets of information.  It'll be well worth your time if you like to think critically about technology, marketing, or entrepreneurial endeavors.

While my tips on etiquette have been primarily focused on work-related inter/intra-office email, Seth's recent post takes aim at mass email campaigns.  Seth lists 8 failures (to be avoided) when sending mass email campaigns aimed at garnering engagement.  There is some cross-over between Seth's post and the topics we've covered here (namely: being succinct, maintaining a human connection, and considering the value of your message before sending), but there is also a wealth of other information regarding email etiquette that's specific to email marketing.

Unfortunately, modern humans are all too familiar with mass email marketing.  Having somebody's email address is a privilege that's not to be abused. When an unsolicited message appears in our inbox it better be from somebody we know, about something we care about, and should sound like it's coming from a human.  If not, the sender will have one or two (at most) chances to connect in a real way before the receiver asks to be removed from the list (luckily email marketing companies make this process pain-less).

Of course, there are legitimate ways to use your email contact list to further your cause or inform people about your new venture, but it should be approached with thought and tact.  If you are running a mass email campaign, and you're thinking about importing your personal or professional Rolodex into MailChimp, take a second to read Seth's post before hitting send…  You can check out Seth's full post here:

http://sethgodin.typepad.com/seths_blog/2013/12/eight-email-failures-and-questions-for-those-that-want-to-do-better.html

What are your thoughts on email marketing?  Do you and/or your organization use it effectively?  Let us know in the comment section!

Email Etiquette: Guidelines and Blunders - Part 3

My discussion of Email Etiquette continues with more guidelines for sending successful and productive email.  If you missed the earlier posts, click here for: part 1 or part 2.

Email Guideline #4:

Be Thorough, Yet Concise

Now that we've covered the ins-and-outs of getting your email recipients and greetings out of the way, it's time to turn our attention the body of the email - the meat, the soul, the raison d'être.

When writing email, the title of this guideline should stay with you always: Be Thorough, Yet Concise.

Think about the background information you have regarding the email's subject.  Does your audience have the same background info or do you need to fill them on something before they read your main message?  Consider whether the recipient will think the email is coming out of left-field.  Give a larger context to the discussion, if needed.

If the recipient is being asked to participate in a discussion or lend their opinion and input, make sure they have all the information they require - this will reduce the need for a long back-and-forth before the desired outcome is accomplished.

As always, there is a line to tread here.  Give the information that's needed, but cut the fat away from your email before you send it.  Make sure your email reads clearly.  Use simple, declarative sentences, and an economy of words.  Write deliberately.  But if your subject requires a long email, then by all means, write a long email.

Even though some people will have a negative knee-jerk reaction to a long email, it is much better than the alternative: a long volley of email clarifications and an ever-expanding thread.  In my experience, as the email thread expands, the risk of miscommunication increases, and simultaneously, the chances of a successful resolution decreases.  If you are really worried about what your audience will think when they open your email, give a quick apology for the long email at the beginning and ask them to take a look when they can devote a few minutes to digesting what you're about to cover.

As somebody that relies on email to communicate with clients and other artists, I can not emphasize enough how important it is to be thorough, yet concise.  Including all the pertinent info in an email will help move the discussion forward, and trimming un-related or un-needed info will reduce the time spent clarifying or untangling miscommunication.

Email Guideline #5:

Make Your Requests Clear

Frequently, email is used as tool to garner feedback or receive important information from others.  Because of this requirement, it is important to make action-items and appeals-for-input crystal clear.

It is suggested that these requests come after the initial information you are providing on a subject.  Use a new paragraph to separate your appeals and draw attention to them.  Feel free to reference the information above, while turning the recipient's focus to the outcome you desire.  This part of the email should answer the recipient's likely question of: "Why did they send this to me?"

Phrase this section of the email in a way that fulfills the outcome you desire.  For instance, if you would like to keep the discussion focused on the initial steps you need to take,without delving into processes that will come further down the line, then communicate this.

If you need input from specific people about different parts of the email's subject, include a direct address to each of the parties and tell them how you would like them to participate in the discussion.  This will aide productivity by defining manageable roles to the individual parties while minimizing overlap or duplication of work between the parties.


These two guidelines will help you write an effective and efficient communique.  By keeping your message comprehensive, yet simple, you'll give other's the background they need to act.  And by making your goals for the discussion easy to interpret, you'll find that people act faster and more in line with your desired outcome.

Email Etiquette: Guidelines and Blunders - Part 2

My discussion of Email Etiquette continues with more guidelines for sending successful email... If you missed Part 1, check it out here.

Email Guideline #2: 

Manage Your Tone

As you start crafting your message, remember to actively manage your email tone.  Because email (like other non-verbal, non-visual communication) will be interpreted solely based on the written words, you need to ensure your intended tone is in sync with the words you write.  Take care to read over the message as you write. Pretend you have no expectations for the contents of the communique.  How would you feel if you were the recipient and you were reading these words for the first time?

In general, the tone of a professional message should be: pleasant, helpful, thankful, apologetic, or sincere.  The tone can certainly shift over the course of the message.  You'll notice that these are, for the most part, "positive" tones.  

I would strongly discourage the use of a negative tone when writing email messages.  If there is a problem that needs to be worked out, and you feel the email thread is degenerating into negativity, move the conversation into another medium.  Talk face-to-face or over the phone.  In-person or verbal interactions are more personal, and in my experience they yield better results for conflict resolution.  Think of atonal as the most negative setting on the "tone spectrum" when composing an email.

When considering your tone, also pay attention to your writing style.  Depending on your familiarity with the recipients, your message can fall somewhere between conversational and formal.  Use complete sentences, and avoid using web/chat shorthand.

I have some specific bones to pick regarding email tone, and I'll include some of these in the "email blunders to avoid" section of this series of posts, but for now, just know:

Sentences like "R u coming l8r?" and "WHAT DO YOU THINK YOU'RE DOING?!?!" have no place in work-related email.

Email Guideline #3:

Start with a Direct Address and a Greeting

Every time you start a new email thread or reply to an email thread for the first time, include a direct address and some sort of greeting.

Base the salutation on the tone of the email.  For somewhat informal communication, use "Hi," "Hello," or a time sensitive greeting like "Good Morning."  Even though it may feel stilted, you can still use "Dear" or "To" if you are writing a formal email.  Add a direct address to your salutation so it's clear who the email is directed to, or from whom you expect a response.  This can be multiple people or a group of people (ie "Good Morning Jim and Stephanie," or "Hi Production Team,").  After the initial salutation, you might also have multiple direct addresses in the body.  For instance, if you have distinct things to say to multiple people, but wanted it to all be included in one message.  There's no need to have another salutation for these additional direct addresses - just move right into the meat (i.e. "Steve, you mentioned had information regarding this...").

This system of direct address adds clarity to long email threads that include large groups of people.  Multiple parties offering information or replying to other's thoughts can easily become confusing.  Unless these conventions are followed, confusion and miscommunication abounds; people lose interest in deciphering the message and thus stop participating in the conversation.

Depending on the context, start the body of your message with a short greeting before moving into the main content.  A quick "I hope you had a nice weekend." or "Happy Friday!" can add a little touch of humanity.  If this is an unsolicited message to an unfamiliar party, you might consider preemptively thanking them for their time, or apologizing for taking a moment away from their work.

As with the rest of the guidelines, use your judgement and size up the particular situation when deciding what's appropriate.

The direct address and greetings are admittedly minor niceties, but they are also the convention.  If you choose to disregard the convention and move right into the body of your email, it can be perceived as brusque.  This may be acceptable if you have a strong preexisting rapport with your recipient, or if you are high in the corporate food chain, but in general it's best to follow these conventions and add a little bit of humanity back into our professional communication.


What are your experiences with work-related email?  If you have stories, comments, or suggestions, feel free to share in the comment section below!

11/18/2013 - UPDATE: Part 3 in this series has also been posted.  You can find it here.

Email Etiquette: Guidelines and Blunders - Part 1

I know there is a lot of information about email etiquette on the internet.  A simple Google search will return a variety of posts on the topic, usually with some number in the title - 101 rules, 26 quick tips, 10 mistakes, etc...  A valid criticism of these posts (and, indeed, this series of posts) is that most of the email etiquette offenders either do not care, or do not know, that there are guidelines to be followed.  So the offenders will not seek out, and will not find, the information we have so dutifully provided them.  However, on the off chance that somebody will stumble upon this series of posts and find my advice useful (or better yet, choose to implement it), I've decided to contribute to the crowded email etiquette arena with a series of email etiquette posts.

My thoughts on email etiquette fall into two categories:

1. Email guidelines - I keep these in mind when I'm composing an email, but they are somewhat open to interpretation based on personal preference.

2. Email blunders - these turn my stomach every time I see them.  Avoid these blunders if you want to maintain professional relationships and/or be taken seriously.

I'll separate my discussion into these two categories, and I'll cover these topics over a few posts.  Keep in mind that while you can apply this advice to casual email correspondence, the main application is for professional correspondence.

Email Guideline #1:

Think About Your "To," "Cc," and "Bcc" Lines

Think critically about who you are sending this email to, and which line they should be listed on in the recipients section of the email.

People in the "To" line should be actively engaged in the conversation.  If you are expecting a response from somebody, or think they may potentially provide a response to your email, include them in the "To" line.  Similarly, if you are responding directly to somebody's email, they should be in the "To" line.

The "Cc" line is for the people that should be privy to the conversation, but from whom you don't necessarily expect a reply.  The "Cc" line is useful if you think the conversation may involve somebody in the future and you want them to follow along with the email thread from the beginning.  The line to tread here is between (a) annoying somebody with an extra email and (b) annoying somebody when they are expected to contribute to a thread they weren't originally privy to, and now must decipher the entirety of the conversation in order to see why they are being included.  Often, the "Cc" line is also used to include proxies for those in the "To" line - for instance, you may include people in the same department, the supervisors, or the direct reports of those in the "To" line.

The "Bcc" line has two main uses:

The first use is sending an email to a large group of recipients when one or more of the following is true: (a) you don't want them to know who else you sent the email to, (b) you don't want the recipients to have the contact information for the others on the email, and (c) you want to discourage a large thread of "Reply-All" responses.

The second "Bcc" use is surreptitiously sending a copy of the email to another person when you don't want the "To" or "Cc" line recipients to be aware that this other person received the email.  BEWARE THIS USE! - if the person in the "Bcc" replies to all, the other recipients on the email will become aware that you included this person in the "Bcc" line, and that you were "secretly" passing this information on to them.  If you think there is any chance the person you are secretly including in "Bcc" may "reply to all," I would suggest simply forwarding them a copy of the information instead.

Whether you are the originator of the email thread, or merely replying to somebody else's thread, you should consider the recipients.  If you are replying, think twice before removing people from the thread.  The original sender may have had a specific reason for including them.  Alternatively, however, if there is somebody crucial missing from the conversation, add them in the "To" or "Cc" line, and consider adding a direct appeal to them in the body of the email (ie, "Hi Tom, You may have the most information on this - please take a look at the question Betty sent over. Thanks, Mark").  You may also re-organize the "To" and "Cc" lines if you are replying, and you feel there is a brazen error (Aside: If it is a small correction between the "To" and "Cc" lines, consider foregoing your re-organization so long as all the critical parties are included in either the "To" or "Cc."  Depending on how much attention the sender pays to their email (hopefully a lot), they may take umbrage at your re-organization, or consider it passive aggressive if you continually adjust their recipients line.  If they are repeat offenders though, definitely clue them in to their mistake... and then send them my way for a refresher!).

If you take care to consider your email audience you'll receive the information you need faster, you'll keep your team on the same page, and you'll avoid the embarrassing mistake of including somebody you didn't mean to include, or excluding somebody you didn't mean to exclude.

I would suggest filling in the recipients line before you start writing your email, and then taking a second look just before you hit the send button.


I'll cover more email guidelines, and blunders in following posts, but if you have comments, questions, or personal stories, feel free to share in the comment section below!

UPDATE: Part 2 in this series has also been posted.  You can find it here.