Is Gen Z Leading the Freelancing Charge?
The world of work is undergoing a massive shift. With the rise of the gig economy and remote work opportunities, freelancing is becoming an increasingly attractive option for many. A recent study shows a staggering 73.3 million freelancers in the United States alone. But dig a little deeper, and a fascinating trend emerges: Gen Z is particularly drawn to freelancing.
Why Go Freelance? Freedom and Flexibility Beckon
The desire for control over work schedule and income is a major motivator for freelancers. This makes perfect sense, especially for Gen Z entering the workforce. However, the allure of freelancing shouldn’t overshadow the realities, particularly on the financial side. Bookkeeping and taxes can be significant hurdles for new freelancers to navigate.
The Financial Reality of Freelancing for Gen Z
One of the biggest challenges for all freelancers, regardless of generation, is understanding self-employment taxes. Unlike traditional employment with taxes withheld by the employer, freelancers are responsible for the full amount. This includes income tax plus an additional 15.3% on net profits to cover Social Security and Medicare.
This can be a surprise for new freelancers, especially considering they’re now responsible for managing these taxes themselves. Failing to plan for quarterly estimated tax payments can lead to penalties down the line. Missing payments can also create a snowball effect of debt with interest and penalties accumulating.
Understanding Deductions: Maximizing Your Freelancing Income
Another financial hurdle for freelancers is understanding and tracking deductible expenses. These deductions can significantly reduce your taxable income. The type of deductions you qualify for depends on your specific freelance work.
For instance, ride-sharing drivers like those working for Uber or Lyft can deduct a portion of their mileage, gas, maintenance, and insurance costs. However, accurate record-keeping is crucial to claim these deductions.
There are two main categories of deductions:
- Ordinary expenses: These are common and accepted business expenses in your field. Examples include mileage, subscriptions to relevant industry organizations, and business-related dues.
- Necessary expenses: These are essential tools or equipment required to perform your job.
Balancing the Benefits: Freelancing with a Traditional Job
An interesting finding from another study reveals that 70% of people see freelancing as viable alongside a traditional job. This suggests many recognize the value of a steady income and employer-handled tax withholding that comes with a 9-to-5 position.
However, even with a traditional job, basic bookkeeping and tax knowledge are still crucial for freelancers. Understanding your self-employment taxes and potential deductions empowers you to manage your finances effectively.
Seeking Help: Financial Professionals for Freelancing Success
The “do it yourself” spirit is strong in Gen Z, and that passion likely fuels their interest in freelancing. However, when it comes to taxes and finances, professional guidance can be invaluable.
An experienced financial professional can help you:
- Set up a bookkeeping system: This ensures accurate tracking of income and expenses, crucial for tax filing and maximizing deductions.
- Navigate tax implications: Understanding self-employment taxes and estimated tax payments is essential to avoid penalties and surprises come tax season.
- Plan for the future: A financial professional can help you develop strategies for saving for retirement and other financial goals while freelancing.
By seeking professional help, Gen Z freelancers (and freelancers of any generation!) can minimize financial challenges and maximize the benefits of freelancing. This allows them to focus on what they do best: building a successful and rewarding freelance career.
