If you’re a freelance graphic designer, writer, marketer or other professional, you know the only two truths in life: taxes and death. But there is a third, practically undeniable truth that you should be aware of: your government hates you. You’ve eschewed the mold of the clock-in-clock-out 9-to-5 employee in favor of a liberated lifestyle (yet arguably more demanding professional life), and that doesn’t sit well with Big Brother’s plans for you. Here are five reasons the government hates you, and how you can stay under the radar to avoid thinly veiled penalizations for freelancing.
This is by far the No. 1 reason the government hates you. First of all, you’re next to impossible to track. Most of your clients probably do not send 1099s, and for good reason: you’re providing a paid B2B service rather than being contracted as a laborer. I’m not advocating misrepresenting your income; however, the fact that your income is impossible to track combined with the lack of third-party verification enrages the IRS.
Moreover, there’s a good chance you live in a state that does not deem graphic design, writing and other professional services to be eligible for sales tax. Thus, the only tax revenue you generate is via income; you, my friend, rate far below even the lowliest retailer (so long as said retailer collects and pays sales tax).
Finally, the government has found a way to make sure they get their pound of flesh: self-employment tax. It is the single most vile line item on your tax return, and you can only pray that your Schedule C deductions help to offset its pure wickedness.
Schedule C? Oh, we’ll take care of that… we call it Schedule Screwed.
Ever try to get a mortgage or car loan, only to watch your lender’s enthusiasm wane as soon as he learns you’re self-employed? You can almost hear them groan as they reach for the hidden button that releases the trap door under your chair. Getting a loan so you can own property when you’re a freelancer is almost as easy as getting a newborn to stop pooping.
But wait, you say, the banks do the lending … what does this have to do with the government? Look, because you do not earn a “regular paycheck,” the banks have no way to verify your income other than through your tax return. And because of reason No. 1, you’re forced to seek every single deduction possible in order to reduce your taxes. And that can reduce your on-paper income significantly, to the point that it looks as though you can’t afford to buy on credit.
We all know that guy that lives in the $300,000 home yet claims roughly $16,000 in income every year. He knows how to play the system; and most of these guys are rock solid when audited. But they got their house pre-recession, back when banks would loan a half a million dollars to a sloth if it could scribble next to the “X.” Now, however, you’re faced with a tough choice: Do not take all your deductions and pay higher taxes, or risk losing the ability to obtain a loan. You can say “make more money” or “live within your means” all you want; but the fact remains that even freelancers who make good money and do live within their means can have trouble obtaining loans based on their taxable income.
Loan you money? Surely not with all these bonuses we have to pay!
3. Health care
Do you buy health insurance? I do. It’s an HSA with dental that costs me roughly $400 a month to cover my four-person household. That’s with a $5,000 individual/$10,000 family deductible. Essentially, I pay the first $10,000 in medical expenses in any given year, and the insurance company picks up everything over that. At least, that’s the general idea – I’m not even going to get into preferred networks and denied claims, since this isn’t an indictment of the health insurance industry. The point I’m trying to make is that health insurance and health care are expensive … it’s like a second mortgage, and it’s only going to get worse.
I’m no insurance expert, and my stance on universal health care is irrelevant; that being said, I’ve discussed the January 2014 health care changes with two different health insurance agents – each with vast experience – who say the outlook is grim for freelancers (and all micro-businesses, for that matter). While health care might become more affordable for some, those who already pay for private individual plans can expect to pay even more starting next year – some estimate between 40 and 115 percent more. That’s a strong pill to swallow for many freelancers, and if true, we can only deduce that the government wants freelancers to get sick and die.
He was a freelancer, you say? Suicide. Case closed.
4. There are more of us
In 2005, 7.4 percent of U.S. workers were freelancers; by 2020, it’s estimated that figure will rise to 40 percent. The aforementioned tax implications of the freelance workforce means the government is undoubtedly going to continue to try to pass legislation that increases your tax burden and accountability. Again, I do not advocate tax evasion; however, I do advocate tax reduction. My prediction is that as the government perceives tax revenue lost to freelancers, they’ll specifically target our group for a hefty tax increase within the decade.
Proposed Internal Revenue Service logo, 2020
Successful freelancers come from various demographics, but we all have one thing in common: intelligence. The freelance workforce as a whole (at least, those who are successful) is an intelligent workforce. We’re also driven and skilled. In combination, these make it far more difficult for the government to target us. We can launch full-scale campaigns that combat legislation that would be detrimental to our time and finances. We’re independent, unencumbered by union restrictions (yet still very capable of forming our own unions). We know what we’re doing, and when we don’t, we know how to ask for help.
And as our numbers grow, our importance becomes more critical and our influence becomes more tangible at the polls. While few could argue that the interests of big business are more often catered to by Congress, if and when the freelance population largely controls the vote, we can take advantage of the democratic process to get our way: reduce taxes, lower health care costs, and realize real representation for freelancers. We’re smart, and know how to take off the political blinders. Freelancers have the power to effect change.
Indeed, the pen is mightier than the sword. An Abrams tank? Not so much
Add it all up, and it’s clear the government hates us. You can protect your career, health,and finances by paying attention to legislation that affects freelancers and becoming politically active, by properly managing your taxes and healthcare expenses, and by continuing to do great work for great clients. But, if you truly want to avoid the wrath of Uncle Sam, my best advice is as such: get a job.