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Ways Through the Maze: A Tax Guide for Indies

#2
Hello Fellow Indie,
 
The response to the inaugural issue of Ways Through the Maze was even more positive and encouraging than I'd expected. So here's the second issue. In it I bring you a question that strikes deep into the heart of every indie on a subject more often mulled over in the mind than said aloud: How does an indie figure out what to charge? 
 
For more info please check out
  • my site
  • my blog
  • my book, SELF-EMPLOYED TAX SOLUTIONS



  • Wishing you success in your indie venture,
    June Walker

    june@junewalkeronline.com
    June Walker
    Consultant to Indies
    June's Book
     
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    Ways Through the Maze

    Will bring you clear and simple solutions to complicated situations about
    • income
    • expenses
    • taxes
    • recordkeeping
    • indie pensions
    • being self-employed

    The Why of 

    Ways Through the Maze

    To guide indies to a more simple and secure tax life. 

    To promote indie-business self-confidence. 
     
    To humanize tax issues with glimpses into the lives and concerns of self-employed people. 

    Each issue will include one or more Q&As that come out of real-life situations of indies who have visited my blog or my website.  
     
    From time to time I'll also announce indie happenings of interest to you.

    Look below for this month's

     Slice of Indie Life 
     
    How much should I charge?
    June --

    I have been a Web Developer / ASP.NET Programmer / Writer / Educator for 4 years.

    I agreed to a rate before researching the real cost of taxes etc... is there a rule of thumb for consulting so I don't make this mistake again?

    For example, should I add 35% to my minimum rate to ensure that I take home what I need?

    Thanks.
    David, M.Ed. from Seattle


    Hello David,

    I think you are asking two different questions.

    I will skip taxes for a moment and look at how much an indie should charge. Let's say you were making $50 per hour as an employee. As an employee all your work expenses were covered and so $50 per hour meant $50 an hour (less withheld taxes)  into your pocket.

    Now, as an indie you have many expenses that you must pay and they must be figured into your hourly fee. Not only do you need to look at things like the costs of a computer purchase and publications you read for business and the costs of running a home office, but what about hours on the phone with your computer guru who is helping you after your computer crash? What about your time or someone else's time cleaning your home office? Your time doing your own bookkeeping? Your time on the web getting answers to tax questions?

    Most new indies -- that is, those without experience who have no history on which to judge their rates -- severely undercharge. They usually should double or triple their fees.
     
    That means that a fee of $500 for a project expected to take 10 hours does not take into consideration the typical ongoing costs of running a business -- and also the not-so-typical things like the two hours at Best Buy exchanging a faulty modem. And, most new indies way underestimate the time a project will take. It is not unusual for a projected 10 hours to double by the time all activity -- such as discussions with the client -- are taken into account. A fee of  $1,000 or $1,500 may better reflect actual costs plus your fee.
     
    The market as well as your business standing may limit how much you can charge but it is important to know your actual costs and to strive to charge what your work is worth, 

    A must-do chore,especially at the start of your indie business, is to keep a log of all time spent on each client as well as on "general" time -- that's the bookkeeping, cleaning, errand-running, printer-jam-fixing kind of stuff.

    Your other question about fees and taxes: Plan on 1/3 to 40% of your net profit going toward taxes. For more info on indie taxes, here's a column from my website: Taxes: Which ones and how much do I pay?

    To learn more about the costs of being self-employed and how to simplify your tax and financial life check out my book,
    SELF-EMPLOYED TAX SOLUTIONS .

    Best, 
    June