Sunday, February 6, 2011
Incorporation is not a tax strategy.
I live in Charlotte, N.C., and have been a freelance writer for five years, although I have only done it exclusively for the last two. (Before that I also worked part-time at a newspaper.)
Anyway, I've gotten a lot of work from higher-paying publications last year, and two of them gave me mid-year per-word raises because they liked what I was doing. The result has been that my income is greater than I expected. wondering if maybe at this point incorporation makes sense as a tax strategy.
I earn $70,000 annually working 25 hours a week. (I have three kids under age 7 so I don't work full-time now but I expect to work more and see my income increase as my kids get older.)
The Department of Labor says it expects "reporters and correspondents" to make $16 to $20 an hour or $43,000 a year. What do you think?
First, let me congratulate you on successfully freelancing as a writer. It's not easy. I think the DOL knows little if anything about reporters and correspondents or the publishing industry as a whole. Newspapers are falling by the wayside. Reporter clients of mine are being let go and they are heading onto the freelancer highway. A really good piece about this is in the December Harper's, "Bright Frenetic Mills" by Thomas Frank.
Do not incorporate. Incorporation for independent professionals should not be part of "tax strategy." So cross it off the list ASAP.
What you need to do to reduce your tax is similar to what you'd need to do if your are putting together a feature story. As my husband, a reporter for decades would say, you can't get too many facts and you can't check them too often. So here's where to start:
1. Learn what is deductible
2. You have three kids and that means a really busy life, so make your recordkeeping as simple as possible.
3. If you make more money than you need to live on, look at the many different kinds of pensions available to indies.
4. Find an indie savvy tax pro.
The most difficult is #4.
#1 and #2 are fully explained in my book. It's available at most libraries or you can buy it here Self-employed Tax Solutions.
#3 Maybe by the time you're ready to contribute to a pension I'll have an indie pension overview available.
I wish you continued success.