You are a mercenary – a hired gun moving deftly from job to job against a landscape of economic prosperity dotted with traps, snares, and possible detours. You carve your own path and make your own way. You work for no one, yet you work for everyone. You possess valuable skills, knowledge, and experience, along with the tools to get the job done. You might be a jack of all trades or a highly specialized technician, but do you have yourself organized, prepared, packaged, and ready to act in the most efficient and economical way possible? Today’s blog is for the mercenary…
I spent 30 years as a mercenary. Self-employed in the music business moving from studio to studio, project to project, juggling clients, personnel, schedules, taxes, finances, insurance, logistics, etc. I will write from the aspect of a music professional but this could be applicable to a photographer, a mechanic, or a any other freelance task. I’ll break it all down today with a caveat – I am not a legal specialist. What worked for me worked out well for me, but it’s possible it might not work, might not be applicable, or could even be dangerously wrong in your situation. Do your own due diligence.
You’re going to do it. You’re going to go out on your own and fulfill your dream. Right off the bat, you’ll need to lay some groundwork – a strong foundation. How do you structure your business? I would recommend that you incorporate. I run my business as a Sub-S Corporation. I’ve heard a hundred reasons why people might choose to incorporate and some of them are downright laughable (no, you won’t save thousands in taxes…), but as we move through the different facets of business below I’ll highlight a few reasons (advantages) as to why you should.
The main reason I suggest incorporating is simple – it will force you to run your business like a business and not a money generating hobby or side-hustle. Your business will be a completely separate entity from your personal finances with its own tax id#, bank account, bookkeeping records, tax returns, and insurance.
You will need to file for a business license and pay property taxes on your equipment, file state/county/municipal corporate tax returns, and file a separate US tax return for your corporation – do it. Be a legitimate business entity in all facets and give no one ammunition against you in the way you structure and run your operation. You can incorporate for around $100 and you can do it yourself, it’s not hard. Don’t be the guy to complain how Spotify is cheating you out of royalties and then turn around and boast that you operate under the radar sans business license and without paying business taxes in order to lower your overhead.
Devote the time necessary to keep a set of books. On a computer, this is very easy using any number of applications. I use Moneywell but there are dozens of options. You will deposit all of your business income into your business account, so come tax time the tabulation of your gross income should take all of 15 seconds. Record all of your expenses on your computer as well. A full set of books on your business (gross/net income, gross/net expenses, profit/loss, payroll, etc.) should take less than 5 minutes to produce on any given day.
It should take you less than one hour to output the numbers necessary for a tax return and compile the documentation you need to present to a CPA. Side note – your Sub-S will “zero out” every year. You’ll take in money, pay your taxes/expenses, and pay yourself the rest, leaving $0 in the account on Dec. 31 and beginning with $0 on Jan. 1 for a new year bookkeeping. I’ve never understood folks who talk about tax returns taking them weeks to prepare with much toiling and anguishing alongside. Be efficient with your records. Don’t use a shoebox.
Believe it or not, some people forget this part or get sloppy with it. Pay yourself a salary – monthly or every other week. You are an employee of your corporation and a regular paycheck will help you manage a budget on the personal side of your finances. Set up an auto-draft from your corporate account to your personal checking account and pay yourself a fixed salary. Do not “blend” money and pay for personal expenses like a movie or a new fishing rod out of your business account – personal expenses should be paid out of your salary.
You knew I was going to say that, right? Save 15% of your salary coming into your personal checking account and invest it in a Roth, up to the maximum contribution of $5,500/year ($458/month). Do it. If you have more than that in investable money you can open a SEP or an IRA and invest there beyond the Roth, but do the Roth first since the the money you withdraw from it in retirement will be tax-free. If you don’t know what to invest in, start with a basic S&P500 index fund and then branch out from there. Auto-draft it so it happens without you thinking about it, buying shares monthly.
Keep track of them. Period. Always pay business expenses from your business account. Keep a receipt of everything you spend and take a picture of high-priced equipment. Again, you run a legitimate business in all facets. It’s ok and perfectly legal to deduct your expenses and be very aggressive in doing so, but give no one ammunition to use against you. Keep records, receipts, and anything that will document the needs of the business and the legitimate business expenses. Sorry, baby diapers are not tax-deductible as a business expense but your cable bill might be if you use high speed internet for business purposes. Know what qualifies and what does not, and keep it real. Tax cheats belong in DC if that’s as far east as we can push them.
This is where a lot of mercenaries take the wrong path and get stuck in a quagmire. As a gun for hire, your clients will not be withholding taxes from your paychecks. If you charge $1,000 for a job you will receive $1,000 for the job. Don’t take that check and buy a $1,000 toy or a $1,000 vacation. If you do so, come April 15 you’re going to be around $200-$250 short on the check you have to write to Uncle Sam. In my experience I have never paid more than an effective 25% tax rate on gross income, so on a monthly basis I take 25% of my gross pay and transfer it from my corporate account into a savings account dedicated for taxes only. I don’t touch it until tax time. I usually have more than enough, so the overage goes into my IRA.
Side note – one advantage of a corporation is that folks paying your corporation for your services do not have to issue a 1099 to your corporation like they would if you were billing them as an independent contractor. That keeps bookkeeping and record keeping down as you won’t gave to keep track of a bunch of 1099s and constantly hand out W-4s, I-9s, and other tax documents required for individual contract work.
For me, this is a real advantage of a corporation as it has been much cheaper to insure my business & equipment as a corporation versus what I see individuals forced to pay. There are also some liability protections that a Sub-S can offer too, so that if someone goes bozo and wants to sue you it can be hard for them to get beyond your corporation and into your personal assets.
A simple $2million “umbrella policy” for a corporation that will provide both liability and asset protection is very inexpensive compared to special “riders” an individual must purchase on his homeowners policy or specialized insurance instruments he must buy to insure his business equipment.
Since you keep records of your expenses, an “asset list” of your business is already compiled. Maintain that for insurance purposes as well. I’ve known 3 people who have seen their studios burn to the ground – all were “home studios”. If this happens and you start claiming a bunch of specialized equipment on your homeowners policy, you’re going to run into problems really quickly. Insure your business – it is your lifeblood. Cranking up a Gofundme campaign as the firetrucks are leaving the scene is not a good insurance plan.
Early is on time and on time is late. If you have a job that starts at 10am, be ready to go at 9:50. That means set up and ready to go, not coming in the door “early” to begin a 30 minute set up process that has you ready at 10:20 (I see it all the time…).
Next, under promise and over deliver. If you promise a project to be done by August 1, turn it in on July 29. If you agree to a dozen photos for your client, give them 13.
Lastly, my #1 pet peeve, put the iPhone down when on the job. You’re being paid to work, not to post pictures of your latte on Instagram or debate the advantages of the health care system in Finland. Do that on your own time, or move to Finland and see if they will pay you to fart around on your iPhone.
Hazards & Speedbumps:
You will encounter predators, snakes, thieves, and saboteurs in your mercenary missions. Be prepared for them and do not let them take advantage of you.
In this day and age with digital payments so readily available there should be no need to wait for payment for a gig. “The check’s in the mail” line is over and done with. It’s perfectly reasonable to ask for a deposit or down payment for a project, just as you would pay a deposit to a roofer working on your house. You should be paid upon completion of your work when the final product is turned in. When was the last time you picked up your car from a mechanic and told him you’d be back in 30 days with his check?
Be very leery in working for free or reduced rates for someone with the promise of bigger and better rewards on the next project – it rarely comes to fulfillment, trust me. Prove your worth and then get paid for it accordingly. Don’t play with snakes.
On that note, in my 30 years I have never signed a contract and consider them, for the most part, worthless pieces of paper. I have only worked 3 projects were I got “stiffed”. Would contracts have prevented them? Doubtful – and by the time I got a lawyer and a court system involved I’d end up in the red anyway.
If I can’t trust you to do business on a handshake deal, a verbal agreement, or a simple email exchange, then I just won’t do business with you. If you end up being a predator, snake, thief, or saboteur, I will simply eliminate you from my business going forward. Tread carefully, shake hands, keep your end of all commitments, do things that don’t require lawyers.
Ok, that’s all I’ve got for now. A mercenary needs to be weaponized and have plenty of ammo, so hopefully I have provided a few arrows for your quiver and a few high-caliber shells for your bandolier. I will see you on the battlefield… Take care!