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Tax Year 2025 Updates for Freelance Workers

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There are two inevitables in human existence and one of them is taxes. The good news is that in many cases, one can prepare and develop a strategy to minimize the impact of the tax burden. The ability to devise a good strategy requires current information and that is the topic today.

You’re probably aware of Federal legislation known as the One, Big, Beautiful Bill. You may not know that parts of OBBB have been revised and proposed changes to federal tax Form 1099-K were tabled and guidelines from previous years have been restored.  

Officially titled the Payment Card and Third Party Network Transactions form,1099-K reports payments received from income generated by self-employed workers and paid to them by Third Party Settlement Organizations such as PayPal, Square, Stripe 2, or Venmo. Revenue received from transactions from online marketplaces, including Airbnb and eBay and also revenue derived from billable hours earned at Freelance B2B services platforms such as Fiverr and Upwork also trigger a 1099-K.

It’s important that Freelance professionals remain updated on federal and state tax legislation so that you can anticipate and prepare for your tax liability. If you’re able to choose your payment method—maybe you’re thinking of offering digital payment options for client invoices?—you would be wise to first assess the impact of that change to your finances. Giving clients additional payment options is now considered a competitive advantage and an aspect of customer service. But when you’d like to initiate payment flexibility, first discuss the matter with a tax accountant and let the tax filing implications, and also other financial advice, guide your invoice payment options.

Internal Revenue Service Form 1099-NEC

What will not change is IRS Form 1099-NEC (non-employee compensation). The form will be sent to self-employed workers, including Freelance professionals, other independent contractors and side-hustle specialists, who’ve been paid $600 or more in a given year. Your earnings most likely will not trigger a 1099-NEC if you billed the client less than under $600 in a calendar year, but you are still responsible for reporting all income whether or not you were sent a 1099-NEC. As a self-employed Freelance consultant, you are required to report self-employment income if your net earnings were $400 or more.

Internal Revenue Service Form 1099-K

As noted above, IRS Form 1099-K reports payments that Freelancers and other sellers of B2B or B2C goods and services received through Third Party Settlement Organizations such as PayPal, Square, Stripe 2, or Venmo for sales transactions between buyers and sellers have returned to the $20,000 billables and 200 transactions thresholds. Upwork and Fiverr will send 1099-K to Freelance workers whose billables equal or exceed $600 in a year, as noted above. Be advised that the proposed $2,500 (for 2025 earnings) and $600 (for 2026 earnings) thresholds are no longer in effect for 2025 and 2026.

As with 1099-NEC (and W-2), 1099-K statements must be sent to you, by email or hard copy, no later than January 31, 2026. If your clients pay you directly by credit, debit, or gift card, you’ll get a 1099-K from your payment card processor no matter how many payments you received or the total dollar amount of those payments.

Keep in mind that your state may have a lower reporting threshold for TPSOs, which could result in you receiving a Form 1099-K, even if your total gross payments and transactions did not exceed the federal $20,000 annual reporting threshold. Some states have their own rules for 1099-K reporting and your state threshold could be lower than the federal limit. While the IRS requires payment platforms to issue a 1099-K only if you have at least $20,000 in payments and 200 transactions for 2025, several states have set their reporting threshold at $600, regardless of the number of transactions.

Qualified Business Income (QBI) deduction

If your business entity is structured as a pass-through, you could be eligible for a 20% tax deduction by way of the IRS Section 199A Qualified Business Income (QBI) deduction. If you are an owner of a pass-through business entity, including S-corporations, Limited Liability Companies (LLC), Partnerships, including Limited Partnerships (LP) and Sole Proprietorships, can claim the QBI benefit whether or not they itemize deductions or take the standard deduction.

The QBI deduction allows eligible taxpayers to deduct up to 20 % of their QBI, plus 20 % of qualified real estate investment trust (REIT) dividends (not to be confused with income generated from rental property). Income earned through a C-corporation or W-2 wages are not eligible for the QBI Section 199A deduction. Eligible taxpayers can claim the deduction for tax years January 1, 2018 through December 31, 2025.

So who can do this? If taxable income (before the QBI deduction) is at or below the threshold amount—and thresholds are different for every year from 2018 – 2025, with the 2025 upper threshold at $197, 300 for single filing status and $394, 600 for married joint filing status—you’ll have access to the full deduction BUT the amount paid by an S-corp or a partnership that is treated as reasonable annual compensation for the taxpayer will not be eligible. To determine if your business may qualify for the QBI, click here to see this older, but useful, IRS form. Most of all, reach out to your tax accountant ASAP and verify your status.

Retirement Plan contribution deferral increase

Have you made a contribution to your retirement this year? If not, you have until December 31, 2025 to slide under the wire and save for your future. These retirement contributions come right off your income, lowering your tax bill and boosting your retirement financial readiness.

The Solo 401(k)—also known as the self-employed 401(k), individual 401(k), personal 401(k) or, to use the IRS’s preferred term, the one-participant 401—is known for its high contribution limits that enable Freelance consultants who have no employees for whom you provide benefits, to save for retirement. That includes Freelancers and gig workers who are Sole Proprietors, or structure their business entity as an LLC, S-corporations, C-corporations, or Partnership. If you have no employees, step right up to launch your preferred version of a single-person retirement fund.

  • In 2025, the maximum contribution is $23,500 (wearing your entity’s employee hat), plus an additional 25% of compensation (wearing your entity’s employer hat). You can also contribute an additional $7,500 in catch-up contributions if you are age 50-59 or age 64 or older. Those between age 60 and 63 may contribute an additional $11,250 in catch-up contributions if the plan allows.
  • In 2026, the maximum you can contribute is $24,500 as the entity employee plus an additional 25% of compensation as the entity employer, with additional catch-up contribution opportunities if you are 50 years or older.

If you file tax form Schedule C as a Sole Proprietor and have a SIMPLE IRA retirement plan, you are also treated as both employer and employee when calculating and reporting your plan contributions. Report both your salary reducing employee contributions and your employer contributions (non-elective or matching) for yourself on Part II – line 15 of Form 1040 Schedule 1, according to IRS info. You must deposit your salary reduction contributions within 30 days after the end of the tax year. For most people, this means salary reduction contributions for a given year must be made by January 30 of the following year. For most individuals, the annual contribution limit for a SIMPLE IRA is $16,500 in 2025 and $17,000 for 2026. Those who are age 50 years and older can also make an extra $3,500 catch-up contribution in 2025 and $4,000 for 2026 if their plan allows it. 

Self‑Employment Tax & Deductions

You already know that Freelance workers must file IRS Form SE no later than April 15, 2026 and pay 15.3% total (12.4% Social Security + 2.9% Medicare) on the net amount of your self‑employment income—because you must fund your own Social Security and Medicare benefits. The good news is that you can deduct half of the self‑employment tax (the “employer equivalent”) from your adjusted gross income.

  1. Social Security Cap: On the first $176,100 of combined wages + self‑employment income in 2025.
  2. Additional Medicare Tax:
  • 0.9% extra if income exceeds:
  • $200K (single/Head of Household),
  • $250K (married filing jointly),
  • $125K (married filing separately).
 Quarterly Estimated Taxes & Penalties

Because Freelancers file 1099-NEC and there is no withholding of earned income, you know that filing quarterly tax forms is a must-do if you expect to owe $1000 in federal tax, including self-employment tax; estimated tax payment must be paid with the quarterly filing. To avoid penalties, pay either 90% of 2025 tax or 100% of your 2024 earnings tax (or 110% of 2024 adjusted gross income if your earnings exceeded $150,000. Quarterly filing deadlines are April 15 (the annual filing), June 15, October 15 and January 15 (because 4Q earnings are reported in the new year).

In closing, I have a gift for those of you who will be 65 years old, or older, in 2025? if so, You’ll receive an extra $2,000 standard deduction (single filers) or $1,600 (joint filers).

Thanks for reading,

Kim

Image: The Tax Collector’s Office (1620-1640) Pieter Brueghel the Younger, courtesy of University of Southern California Fisher Museum of Art, Los Angeles

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Meeting Primer: Make Every Minute Matter

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So you’ve decided to call a meeting. Maybe you and your client’s team are due for an update/ check-in; or has an unexpected glitch created a project roadblock that demands a problem-solving strategy? Let’s look at the bright side—-has what appears to be an opportunity revealed itself and the purpose of your meeting is to verify that the opportunity is not a mirage and deciding how to proceed?

Oftentimes, a meeting means a decision must be made. When it comes to meetings one thing is certain—the purpose is always about finding the way forward, where you’re going and how you’ll get there. Moreover, there are always action items to follow-up on.

Meetings have a checkered history; there is an unfortunate tendency to deviate from the agenda and get lost in the weeds. Salvation is within reach, however, when the convener—you!—thinks through the key components of the meeting so that you will enable the meeting to both fulfill its purpose and leave the participants feeling energized, engaged and effective.

Agenda

It is your job as meeting convener to create the conditions for a successful meeting. Begin by identifying the purpose of your meeting—must potential solutions to a problem be explored, or must the team determine strategies that will advance a certain goal? Once the meeting purpose is confirmed, the convener will then consider which information and/or actions will be needed to support the meeting purpose and inform the creation of the meeting agenda—which will be the meeting journey roadmap. To create the agenda, allow yourself to do some some free association thinking to get a mental picture of what must be discussed and resolved.

Attendance

Next, decide who should attend, as well as those who perhaps for political reasons you would be wise to invite. There may be certain stakeholders or power brokers who must be in the room (or in virtual attendance), whether you want them there or not. Those on the must-invite list could be a net-positive, however; you may be able to convince one of the VIP attendees to troubleshoot, green-light, recruit allies, approve funding, or somehow advance your vision of what needs to happen.

Following the list of heavy weights, you’ll be free to draw up a list of those who should attend, who you want to attend, because they have the subject expertise and insight that will benefit the meeting purpose. Finally, there are those you should ask to attend because they know how to get things done and can be trusted to carry out important action items—and just as valuable, if there’s a vote taken, they’re with you!

Bear in mind that there may be stakeholders /VIPs who simply appreciate receiving info regarding the outcome of your meeting, but they do not need or want to attend. If someone doesn’t need to be there, offer them alternatives, such as asking them for pre-meeting input or sending them a follow-up meeting summary. Fewer attendees mean more-focused conversations—and ultimately better outcomes.

Use the “Five W’s”—who, what, where, when, and why—to generate the participant list. Who needs to be there? What, if any, special information should you bring in resources to support the conversation (meeting handouts or presentation slides? What information can drive decision-making and needs to be shared and what is just a distraction and doesn’t need to be included?

You must also consider the most inclusive and welcoming format for the meeting—in person or virtual? It’s entirely likely that your meeting will be hybrid and it will be necessary to design logistics that will make those who attend virtually feel fully present.

Engagement and participation

As you know, the best meeting outcomes are achieved when you bring together participants who have the means and motive to contribute something relevant to the proceedings. Lackluster participation in meetings weakens the result by reducing collaboration, hampering decision-making and eroding team unity. How can you encourage more fruitful engagement? Step One is to create an agenda that directs attention to the core purpose of the meeting, whether check-in, problem-solving, or decision that must be made, or opportunity to exploit.

Start by clarifying expectations for the meeting and participants by outlining some of the supportive behaviors you want to see in your meetings. For example, you might emphasize mutually supportive behaviors such as nonjudgmental communication, collaborating to tackle challenges together, sharing of resources and information. It’s also helpful to offer team members different ways to contribute—for example, allow for written input before, during, or after meetings. Giving those who are typically less vocal a structured role can help empower them to speak. When participants know that their insights and wisdom are valued, they’ll find the motivation and courage to speak up and they have the potential to perhaps bring an unexpected idea or perspective that will greatly improve the outcome and relevance of the meeting.

Finally, make every minute count and don’t run over. Set meetings for the shortest time necessary, not by default increments like 60 minutes. Honoring to the agenda and ending on time helps people sustain focus, reduces frustration and communicates to everyone that your meetings are worth attending.

Thanks for reading,

Kim

Image: ©Siphosethu Fanti/peopleimages.com for Adobe Stock

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Contract Management Promotes Business Growth

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Congratulations Freelancer colleague, as summer ends and the fourth quarter approaches, you’ve landed a client and have been asked to sign a contract. You are well aware that receiving a contract is the road to revenue but that’s only part of its power. When a contract and the arc of its lifecycle are recognized and utilized, you can initiate a mutually agreeable working relationship with your client and make the possibility of repeat business amenable to the client.

To the best of your ability you, Freelancer friend, should ensure that all contracts you sign advance and protect your interests, as well as the client’s. Keep at top-of-mind that expectations are foundational to contracts. A well-written contract defines and describes what the client expects of you—primarily, to produce the desired outcome or deliverable that also meets the client’s quality control standard and is completed and available by a specified date.

At its core, a contract is a commitment whose purpose is to guarantee that client expectations and your responsibilities are defined and achieved. When you think about it, a contract is potentially more than a method to certify a working agreement. In particular, contracts that pertain to B2B services or products can be considered strategic tools that provide risk management for both you and the client, in addition to revenue generation for you.

Contract management is the process of creating an official document that identifies client expectations and defines the responsibilities of the party that produces the outcome or deliverable and meets the deadlines. Contract management also includes the discussion and negotiation of factors such as payment for work performed and contingencies that, when agreement is reached, are written into the document. Contract management is considered completed after the outcome or deliverable are produced and the document is reviewed and analyzed to assess the execution of the work performed against the terms of the contract. This final step of contract management is of particular interest to B2B service providers, whether the deliverable is a one-off project or an ongoing subscription, as it may reveal where and how you could have utilized your company’s operational processes more efficiently to reduce monetary expenses or time associated with producing the deliverable.

A written agreement

Contracts typically begin with discussion and a verbal agreement, but that process should be viewed as only the first step of new client engagement. It is in the interest of both parties to commit all major business agreements to writing by creating a contract after first discussing client goals and expectations, timeline and budget to attain understanding and mutual agreement and then following-up with the development of a written document that will be signed by the parties involved.

The author of the contract will depend on the client. Corporate and not-for-profit organizations typically have a standard contract that is used for Freelance talent. Small businesses and organizations that engage with few Freelancers may be happy to allow you to author the document. Over time, many Freelancers develop a standard B2B professional services contract template; however, it will be worth your while to investigate contract templates that can streamline and speed up the contract management process, from creating the document, to negotiating terms and facilitating online docu-signing. You will find contract management software available on several platforms.

Regardless of its author, know that you owe it to yourself to carefully review all contracts that you intend to sign, to ensure that both signers will be able to meet the terms. Put questions and answers in writing (email), to provide documentation. When you are not the contract author, diplomatically suggest that you and the prospective client collaborate and negotiate when you find it necessary, to ensure that you can fulfill your responsibilities and please the client. All changes to the agreement should be in the form of written amendments, or at a minimum, an email that documents the changes.

Finally, caveat emptor—a contract is only as good as your ability to enforce it. A written agreement is nearly always useful, but if one of the parties fails to fulfill the agreed-upon terms, the other will be stuck. Even a contract written to anticipate nearly every contingency is only as good as the behavior of the signers. Integrity and trust matter and maintaining complete records is a must.

  • Document changes: If changes are made to the original contract, write them down. Make sure everyone signs off on all changes and attach amendments and signatory approval to the original agreement.
  • Keep original copies: Keep signed copies of all contracts safe and organized, whether they are in hard copy or digital format.
  • Track communications: Keep a record that includes notes and the dates of all contract discussions. This includes emails, letters, meeting notes and phone logs.

Payments

Let your contract specify when, how much and by what payment method you’ll be paid. While W-2 employees receive regular weekly or bi-weekly paychecks, that is not the scenario for Freelance consulting talent. At some organizations, we are the last to get paid and late, sometimes scandalously late, payments can be distressingly common.

Defend yourself by making it clear to the client that you expect to be paid according to the timeline that was discussed and agreed upon. In fact, once you and the client have committed to the amount of your project fee and scheduled the initial payment that you require before commencing work, as well as the milestone or other interim payments, if applicable, plus the timing of the final project payment, be certain to specify the amount and schedule of those payments in the contract. Furthermore, you might also note that all payment amounts and associated dates are non-negotiable. Trust is central to every contract and committing the agreement to writing encourages trustworthy behavior.

Along with a dispute resolution clause in your agreement, also specify how you will handle non-payment. You shouldn’t be expected to continue work if you aren’t getting paid but collecting unpaid debt can be a real challenge. Include a clause about debt collection, either through an agency or a lawyer— and that cost should be on the client, not on you.

Client expectations

Before you enter into a working agreement, you and your client must have similar expectations of one another’s roles. Assume nothing and in particular, ask questions to confirm the project deliverables and timeline—milestones and deadline. Ask also for your client’s description of a successfully achieved milestone and a successfully completed project.

In a Freelance B2B contract for professional services rendered, outline what you agree to do and how it will be done. There must be no ambiguity about the desired outcome or deliverable, or the quality of the work that the client expects. It’s also helpful to make clear what happens if you do not meet the agreed-upon deliverable deadline; usually, it means some portion of your payment is withheld until both parties are satisfied with the progress of the project.

Ensure that the client knows the full spectrum of services you’ll provide to satisfactorily produce the outcome or deliverable and the amount of time you expect will be needed. If there are complicated elements to the project, make sure the client comprehends what is needed to achieve the that vision.

Milestones

Milestones are essential for independent projects, as well as for organizations that hire Freelance talent. By detailing a project’s milestones, you can ensure that you and the client know when to expect key deliverables. If no milestones have been discussed and agreed upon before your hire, you might raise the issue yourself, in order to keep your client apprised of the project’s progress and document your intention and ability to satisfactorily complete all work by the deadline.

Intellectual property

If the assignment you’re hired to complete involves intellectual property of some sort, the contract should describe and define who owns what. Do you exclusively own the intellectual property, or does your client have some rights to it? Be sure that you understand precisely what you’re handing over and what rights you retain to make sure that you identify which party owns what rights and royalties for each product or service made available. It’s a good idea for both parties involved to have their IP attorney review a Freelance contract before signing on. The last thing either of you wants is a misunderstanding over ownership to break out after a project has been completed, especially if a significant amount of money is at stake.

Confidentiality

It is assumed that you will not share any information about your client’s business without written consent. You may be asked to sign a Non Disclosure Agreement and if so, maintain a copy in your records, along with the contract.

Confidentiality includes financial data, proprietary information and other protected details. There should be a clause that prohibits you from releasing any of your client’s personal information without permission. If you feel it necessary to disclose confidential or protected information for legal reasons, make sure that you obtain your client’s explicit permission before doing so.

Support and resources supplied by the client

Identify your client contact either in the contract or in an email and confirm that person’s availability to you and the type of support that will be provided. If on-site access to company resources, equipment, or materials is needed to execute the work you are hired to do, specify in writing what you’ll need to use and document your intention to return it and to whom it will be returned when your work is completed.

An out clause

It can be frustrating if you’ve been led to believe that signing a new client is imminent, only to have the agreement unexpectedly fall apart. In the Freelancing universe, it’s anticipated that some projects might end prematurely, whether the result of an unexpected hire of a W-2 employee or a sudden funding loss. Alternatively, you may face a health crisis or family emergency that will make it extremely difficult to fulfill the contract and forces you to terminate the agreement.

Regardless of the determining factors, a termination for convenience clause allows either party to unilaterally end a B2B contract without cause and without engaging in litigation. The client can simply provide notice that s/he must end the agreement and pay you for any work that’s been done, or you can inform the client in writing, in accordance to a predetermined specific termination notice period (14 to 30 days is common), and agree to certain post-termination obligations.

 Effective communication will be critical to soften negative perceptions and sustain future collaboration. A transparent explanation of the reason for termination is essential to preserving credibility and trust.

Next steps

Once the contract is signed, be certain to send your new client a welcome letter and schedule a face2face or videoconference meeting to begin onboarding and officially inaugurate your new client engagement!

Thanks for reading,

Kim

Image: Treaty of Paris, More Than Meets the Eye, 1783 (Benjamin West, 1738-1820) courtesy of The Winterthur Museum, Garden and Library, Winterthur, DE. The treaty officially ended the American Revolutionary War (1775-1783) and marked England’s acknowledgement of the U.S. as an independent sovereign entity with defined borders.

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How Freelancers Manage Up

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Despite the benefits that the vast majority of Freelance professionals routinely deliver to clients with whom they work, supplying expertise, creativity, problem-solving ability and can-do work ethic to ensure that mission-critical projects and other important initiatives are successfully implemented, from time to time a client may be disappointed with the outcome of his/her experience with Freelance workers. Unfortunately, some clients feel that the Freelancer hired to produce their project deliverables was somehow lacking; these clients may even feel that the Freelancer failed to deliver the desired vision of the project outcome.

While there are any number of factors that might sour the working relationship between client and Freelancer, an objective post-project analysis of what went wrong is almost guaranteed to reveal poor communication between the parties. Because clients initiate the hiring of Freelance professionals, they are responsible for managing the process from Freelancer recruitment to charting the progress and quality of project work, from acknowledging successful project completion to concluding with timely payment for Freelance services rendered. In a perfect world, clients understand their responsibility for creating a positive working environment for their Freelance talent, because they are aware that it’s a smart way to facilitate and encourage his/her best work.

In reality, however, it is not unusual that clients find themselves in uncharted waters when taking on the responsibility of recruiting, hiring and managing Freelance workers. It is therefore a useful practice for Freelance professionals to encourage best practices by diplomatically suggesting a course correction when some vital component is either omitted or is in need of an upgrade. Fortunately, an experienced Freelance professional (like yourself!) can teach clients who may have scant experience working with Freelance professionals how to make their forays into the Freelance workforce a win-win.

Stepping up to “lead from behind” when necessary and encouraging practices that facilitate a collaborative and productive work environment is yet another way to demonstrate your value to clients. Politely asking questions and/or making suggestions that can potentially contribute to successful project outcomes and also the customer experience that the client seeks—but on his/her own, may not always be able to find—is a useful practice. Here are a few tips that might enhance your experiences as a Freelance professional.

Defining the project and expected deliverables

Surprisingly, there are prospective clients who intend to hire a Freelance professional without sufficiently defining the project specifications. If the project specs your client presents appear vague or open-ended, ask for more details that unambiguously detail what is needed (and by what date). What you want to avoid is being judged as unqualified by a client who is unable to describe what s/he wants. The New York Times notes that vague job descriptions cause unqualified candidates to apply for those positions and qualified candidates to avoid them— and that applies to Freelancers as well.

Forward-thinking Freelancers speak up and request clarification of project specs, project deliverables and deadlines and key expectations if there are questions, during the interview and will furthermore confirm project deliverables and deadlines, as well as other key expectations. From your interview meeting notes, reiterate the list of most vital project responsibilities as described by the hiring manager/search committee in the interview thank-you letter that you’ll send. Demonstrate both your professionalism and commitment to the project’s success as you show the hiring manager/search committee that it is most helpful to confirm pivotal elements of the project that the Freelancer who is hired will be expected to do—and also position yourself as the ideal candidate to hire for the assignment.

Onboarding process

To maximize the potential for delivering your client’s vision of a successful project outcome, your ability to meet (or exceed) those expectations will likely be enhanced when you receive some level of onboarding. Onboarding is a “getting to know you” process, a mutual introduction that enables organizations to ensure that employees, and also Freelance workers, will understand its purpose and guiding principles. A concise overview of basic company history and culture can inform your understanding of how the project you’ve been hired to work on fits into the business mission. You can self-start onboarding with a visit to the “About us” page on the company website.

Furthermore, while interviewing to win the assignment, know that you would not be out of place to ask questions about the project—for example, how the project supports or expresses the organization vision and mission, or the history of the project if it’s an ongoing event. Showing the client that you are interested in the values and principles of the organization positions you as more than someone who is primarily interested in satisfying your own agenda, whether it’s working on a certain type of project or simply getting paid. Those are worthwhile, and necessary, motivations, but prospective clients will see you as someone who is genuinely interested in their organization when you ask questions that focus on its history and culture. Your initiative can show clients that it is in their interest to treat Freelancers with as much regard as any member of their team.

Transparency and communication

As you execute the project work, be certain to routinely engage in communication and transparency. Progress reports, possibly in the format of project milestones, are an excellent format for updates that reassure the client that your work meets expectations and is on schedule—and if there are problems or changes, there will be time to fix things.

In addition to project milestones, when you feel it will be helpful, do not hesitate to ask your client for clarification of any aspect of the project work that you’d like to confirm. Successful client relationships work best when there is a transparency that’s supported by ongoing communication. Make time to discuss the work to ensure you and your client are on the same page, discussing ideas, identifying what may be an obstacle, or deserving of some rethinking, and overall keeping the project work on track. Follow a communication style that is comfortable and reassuring for the client as it portrays you in a favorable light and enhances your value as a successful hire.

Invite client feedback

Facilitate for your clients the opportunity to give you constructive feedback, throughout the project and especially at its conclusion. Receiving feedback is important for Freelancers so you’ll understand what it takes to deliver 5-star work and customer experience. Constructive, relevant client feedback helps you learn how to please clients. You want to know what generally makes the working experience stress-free, efficient and pleasant. Happy clients encourage repeat business and referrals—and that makes Freelancers happy!

Thanks for reading,

Kim

Image: © Vlada Karpovich for Prexels

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8 Year-End Checklist Tasks To Keep You Organized

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The sun is setting on 2024 and telling Freelancers and all business owners that it’s time to close out the waning year and prepare to welcome the New Year. To make sure that no important matter gets lost in the shuffle during what may be a rush to tie up loose ends, you may appreciate the practicality of a year-end checklist. The checklist is simply a to-do list that keeps you organized as you attend to the many tasks and responsibilities, business and personal, that arise at this time of year. Taxes and other financial responsibilities rank high on the checklist; identifying business (and personal) goals for the New Year run a close second. As you work your way through your checklist, you’ll discover a perhaps unexpected bonus—the checklist also provides an objective assessment of where your business stands as of December 31 and can indicate useful goals and benchmarks for 2025.

Before you become immersed in holiday preparations and celebrations, block out four to eight hours to devote to getting your entity’s house in order. That’s your strategy to eliminate holiday spoilers, like anxiety resulting from uncompleted responsibilities. Call on your discipline and power through the administrative tasks listed below, so you can truly enjoy dropping into parties and celebrating the season with friends, family and colleagues.

  1. Make business purchases. The end of the calendar year is your cue to buy equipment, services, or other necessities for your business on or before December 31, to add to your 2024 tax deductions and lower business taxable income. What expenditures are on your wish list and what does your budget allow? If you’ve had business goals on your mind (and I know that you have!), certain software-as-a-service subscriptions could be on your must-have list. Or maybe you’ve thought of updating business equipment, or items to make your workspace more favorable? Do you need to pay an insurance premium, or upgrade a policy? Maybe you can make an early payment and let the expense be recorded as an asset on your 2025 Balance Sheet. Think also about initiating professional services, for example, a business attorney, or even bringing in a Freelancer to help with projects such as bookkeeping or social media management? Now is a great time to make those purchases, which will result in lowering your taxable income.
  2. Send Form 1099 to your Freelance workers. First, verify that Freelance team members you’ve hired have completed IRS Form W9, so that you will be ready to send to those who provided services of $600 or more an IRS Form 1099NEC . Tax statements must arrive, by USPS or email, no later than January 31, 2025, as required by IRS regulations.
  3. Get your bookkeeping up to date and schedule tax appointments. Before the holidays dominate your focus, bring your books up to date. If you maintain the business financial records yourself, get busy now and review the year’s financial records, receipts and accounting so that documents are organized and closed out for the end of the year and ready for tax preparation time. If you’ll hire a bookkeeper or a tax accountant to handle business taxes, schedule an appointment today to ensure that you’ll 1.) get on the calendar of whom you want to see and 2.) improve your chances of getting an appointment date that’s good for you.
  4. Consider your business legal entity and tax election changes. As a business grows and evolves, it may be beneficial to change your business entity classification or change the tax category. In many cases, forming an LLC or corporation, both of which change the entity’s tax status, can be more complicated when the change occurs mid-year and is sure to complicate that year’s tax returns. Furthermore, changing your tax status (e.g., converting your entity to an S-Corp) is time-sensitive and must be completed before the May 15th due date in most cases. Year-end is a good time to assess whether or not your current business entity type and tax status election are the best choice for your business. Incidentally, making this decision is ample motivation to upgrade your professional services by bringing on a business attorney and/or business accountant (or a very savvy bookkeeper) because you’ll want the guidance of a certified professional such as a CPA, financial planner, or attorney and to help you plan any major changes to have them effective for the start of the new year.
  5. Add dates for taxes, registrations and important filings to your new calendar. What with quarterly taxes, business registration or certificate renewals and other important records filings required of a business, you absolutely want to be ready and not caught unawares by any due dates. Record in your new year calendar all important filing, payment and renewal dates so you can keep your business compliant and in legal operation without incurring costly penalties and fees.
    • Business license renewal
    • Estimated income tax payments
    • Sales tax return filings and payments
    • LLC tax payment
    • LLC Statement of Information filing
    • Business insurance premium payments
  6. Contribute to your self-employed retirement account Investing money in a self-employed retirement account, such as a solo 401k or SEP-IRA, is 100% tax-free and lets you save on three tax categories that would otherwise pay. Instead, money invested in your self-employed retirement account enables you to avoid the federal and state self-employment tax – and book significant savings! Self-employed professionals can contribute up to 25% of annual net earnings, up to $66,000, to a self-employed retirement account tax-free (for 2023). Make your payment on or before December 31to lower your 2024 taxable income.
  7. Cancel any unused memberships and subscriptions. Oh, the best of intentions! You may have signed up for subscriptions, memberships, or other services that renew monthly or annually, which may have been helpful at one point in your business but are no longer useful—or IRT, you found that can’t find a role for them. The end of the year is a great time to review automatic payments charged to your business checking account and verify what is worthwhile and is actively being used.
  8. Plan your goals for the New Year. What next big steps to promote business growth do you see? What might be the next strategies you’ll implement to create a sustainable, profitable business? The possibilities are exciting and yours to pursue, guided by a good plan. In the October 15 post, we explored how you might scale your operation—maybe the new year is when you take actionable steps to do that? To avoid feeling overwhelmed, consider dividing your goals into short-term and long-term projects, breaking your larger goals into smaller, actionable steps you will need to plan ahead. Consider also tasks that can possibly be outsourced by hiring a Freelance professional like yourself? Start your new year goal setting by examining the current state of your business and then think about where you would like to be at the end of next year. What actions appear to be needed to get to that point? Next, break those goals into smaller projects and create a plan of smaller goals for each month of next year. When you start the year with smaller, actionable goals that seem easier to reach, it will seem easier to consistently take those smaller steps that can add up to big changes over time. Setting micro goals in advance can motivate you to develop strategies and implement action items that drive achievement.

Happy Thanksgiving to my American readers! To everyone, thanks for reading.

Kim

Image: © ProHow

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States Pass New Laws to Help Freelancers

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According to the 10th annual Upwork survey Freelance Forward, 64 million Americans worked as Freelance professionals in 2023, labor that contributed $1.27 trillion to our national economy. It’s a ringing testament to our talented and ambitious community but unfortunately, 71% of the 3000 survey respondents also reported that they’ve struggled with the frustrating problem of late payment or even non-payment for their work.

The persistent occurrence of payment gaps that Freelancers and other gig workers endure exacts a terrible toll on the ability to live and work. Late payments and, worse still, nonpayment, wreaks havoc on cash-flow and may threaten the maintenance of normal business operations and the ability to plan for the future. When payment for services rendered doesn’t arrive within 30 days after the invoice is sent, the ability to pay bills can be undermined and the problem is exacerbated as the price of everything continues to increase. But for those of you working with clients based in California, Illinois, or the State of New York, things will soon get better.

New state laws protect Freelancers

It is said in legal circles that a contract is only as good as one’s ability to enforce it and that sometimes puts Freelance professionals at risk for exploitation. You seldom have the leverage to adequately defend yourself against unscrupulous clients who ignore their contractual responsibility, written or verbal, and decline to pay on time and in full for appropriately provided services rendered. But in NY State, IL and CA, a new day has dawned. Freelance professionals and gig workers, who are often in a comparatively vulnerable position when entering into work agreements with clients, are celebrating the passage of legislation that puts the force of law into contracts between the independently employed and their clients. The driving force behind the legislative victories was the Freelancers Union, a New York City-based advocacy group that has championed the rights of independent workers since its founding in 1995.

On August 4, 2023, Illinois became the first state in the country to adopt protections for an estimated 1.2 million Freelance workers when Governor J.B. Pritzker signed the Freelance Worker Protection Act, which took effect on July 1, 2024. The Act applies to work agreements between Freelance professionals and “contracting entities,” i.e., clients, in exchange for the Freelance worker’s services valued at $500 or more over a 120-day period. The Illinois Act excludes from the definition of “Freelance worker” any workers performing construction services, or those defined as an employee.

On November 22, 2023, New York Governor Kathy Hochul signed into law the Freelance Isn’t Free Act, groundbreaking legislation intended to shield Freelance consultants and other 1099-NEC workers from the financial damage done by non-paying or slow-paying clients. The Act was created to guarantee that Freelance workers retained as independent contractors who work with clients based in NY state receive timely compensation for all services rendered. The NY law went into effect on August 28, 2024 and some 2 million Freelance workers are expected to benefit from its much-needed legal protections.

In CA, the Freelance Worker Protection Act was signed by Governor Gavin Newsom on September 28th, 2024. As does the IL and NY legislation, the Freelance Worker Protection Act ratified in CA provides legal protection to Freelance professionals and the independently employed who work for clients located in CA. The CA law takes effect on January 1, 2025 and an estimated 2.2 million Freelancers (11.6% of the workforce as of 2022) are expected to benefit. The CA Freelance Worker Protection Act requires written contracts for Freelance services valued at $250 or more when working with clients based in CA. It is now mandated that contracts must outline the scope of work, payment method, deadlines and other important details that ensure transparency and fairness.

Written Contract
Per the Freelance Isn’t Free Act, all contracts pertaining to NY state clients and worth $800 or more must be in writing. This includes all agreements between the Freelancer and the hiring party (client) that total $800 in any 120-day period. The written contract must specify the work the Freelancer is expected to perform; the amount the Freelancer will be paid as compensation for the work; and the date the Freelancer will be paid for the work performed. Both Freelancer and client must keep a copy of the written contract. The NY Department of Consumer and Worker Protection (DCWP) created a model contract [English] that includes the terms required under the law and optional terms that may apply to different work types and arrangements. 

The Illinois Freelance Worker Protection Act requires that contracts for products or services must be in writing, and that the client provide a physical or electronic copy of the contract to the Freelance worker. Contracts must include certain information, such as the name and contact information of both parties (including the client’s mailing address), an itemized list of all products and services to be provided and their value, the rate and method of compensation and the payment date or mechanism by which such date will be determined. The client must retain a copy of the contract for a two-year period.

California’s Freelance Worker Protection Act likewise requires written contracts for Freelance services, when the value of services provided is $250 or more. Contracts must outline the scope of work, payment method, deadlines and other important details, to ensure transparency and fairness.

Timely Payment
In CA, IL and NY, your client is required to pay you for all completed work and you are entitled to receive payment on or before the date that is specified in the contract. If the contract does not specify a payment date, the client must pay you within 30 days after you complete the work.

No Retaliation
In all three states, it is illegal for a hiring party (the client) to penalize, threaten, blacklist, or otherwise deter Freelance workers from exercising their rights under the Freelance Isn’t Free Act or the Freelance Worker Protection Act. Denying an independently employed worker from obtaining future assignments and threatening to take unwarranted legal action against that worker is likewise now illegal. Freelancers who feel they have been targeted for retaliation as a result of pursuing a claim against a nonpaying or slow-paying client can file a complaint with DCWP (NY), or the IL Department of Labor, or in CA at the Labor Commissioner’s Office.

What is Freelance Isn’t Free (NY)?

  • 30-Day Payment Terms. Unless otherwise specified in a contract, clients must pay Freelancers within 30 days of work completion.
  • Mandatory Contracts. Clients must use a contract when hiring a Freelancer for over $800 of work and they can face fines if they refuse to provide one.
  • Payment Agreement Protections. Clients cannot require that Freelancers accept less than they’re owed in exchange for timely payment.
  • Anti-Retaliation. Clients cannot retaliate against a Freelancer for pursuing payment.
  • Legal Assistance. A city agency will investigate, may try to collect on the Freelancer’s behalf and will provide court navigation services if needed.
  • Double Damages. Freelancers can collect double damages and attorney fees in court and repeat offenders can face penalties of up to $25,000.

What is the Freelance Worker Protection Act (IL)?

  • Written Contract Required. A written contract outlining the products and services to be provided, the dates by which services are to be performed, and the rate and method of compensation (sample available online, and free Union contract templates available) 
  • 30-Day Payment. 30-day payment terms, unless otherwise specified in the contract.
  • Payment Agreement Protection. Protection against coercion for faster payment.
  • No Retaliation. Anti-retaliation measures against Freelancers pursuing payment.
  • Enforcement and Legal Remedies. Double damages for non-payment, covering costs and attorney’s fees.

What is the Freelance Worker Protection Act (CA)?

  • Written Contract Requirement. Freelancers must have a written agreement in place for work totaling $250 or more over a 120-day period. The contract must clearly outline the scope of services, deadlines, compensation rates and payment methods.
  • 30-Day Payment Terms. Freelancers are entitled to payment within 30 days of completing their work, unless the contract specifies otherwise. This provision eliminates the uncertainty many Freelancers face when waiting for payment.
  • Anti-Retaliation Protections. Freelancers are protected from any retaliation by hiring entities if they assert their right to fair payment under the law.
  • Enforcement and Legal Remedies. If a client fails to pay, Freelancers can seek legal recourse, including double damages and the recovery of attorney’s fees. Both Freelancers and public prosecutors can file claims to ensure compliance with the law.

Confirm milestones, invoicing, payment format

On your end, Freelancer friend, remember that the importance of providing a pleasantly efficient and smoothly delivered experience for your B2B clients cannot be overstated. Working together is a partnership and the dance is much more enjoyable when each partner understands his/her role. The contract between your company and the client describes and confirms your mutual agreement in a written document, specifying the responsibilities, terms and requirements and payments associated with the working relationship.

Once your hire has been confirmed, schedule a project kick-off meeting and review with your client the scope and timing of project deliverables, plus the associated payments or other payments. Also, include in the kick-off meeting agenda a discussion of the project or product performance goals, client expectations for the product or service you’ll provide and the ideal outcomes expected to be achieved when using your product or implementing your service. You and the client can then discuss how you’ll work together to make the client’s goals and expectations actionable and attainable. If an electronic invoice payment system will be used, ensure that your client sends the payment registration form to you, to promote a timely first payment.

  • Review and confirm project milestones
  • Review and confirm payments triggered when milestones are achieved
  • Review and confirm the invoicing schedule, if milestones are not used
  • Confirm the accepted payment methods—digital, credit/ debit card, check (electronic or physical)
  • Integrate info with your Client Relationship Management software (if applicable) to capture client data
  • Allow clients to view, comment on and sign e-documents

Thanks for reading,

Kim

Image: The Signing of the Treaty of Mortefontaine 30th September 1800 depicts the signing of the agreement that ratified the sale of Louisiana to the U.S. by France. The treaty was signed by Joseph Bonaparte, a diplomat and former ambassador, on behalf of France and Oliver Ellsworth, a framer of the Constitution and Senator from CT, on behalf of the US. Artist: Charles Etienne Pierre Motte

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Freelancers and the Vacation Dilemma

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HoneyBook, an online business and financial management platform that serves entrepreneurs and Freelancers, conducted a survey of self-employed Americans and the results were depressing, yet not entirely surprising. The survey polled 800 + independent U.S. workers in May and June 2019 and found that while the Freelance economy provides flexibility, a factor routinely prized by the self-employed, 92% of Freelancers work on vacation and 60% of that cohort do so because they feel they must.

According to Freelance Forward 2023, an annual survey of Freelancers and other independent workers conducted since 2013 by Upwork, the online talent marketplace that connects Freelance talent with companies in need of their expertise, there are now approximately 64 million U.S. workers participating in the Freelance economy and they’re well aware that taking time off results in lost income, as reported in the five-year-old Honeybook survey. 1099NEC workers do not qualify for paid time off, whether for illness, holidays, inclement weather, or vacations. The 92% who feel compelled to work while officially off- line stand as irrefutable evidence that either fear of disappointing clients or fear of economic difficulty caused by lost revenue drives the practice of working during vacation. While 85% of Freelance Forward 2023 participants reported that the future of Freelancing is bright, caution reigns.

Furthermore, the Honeybook survey also found that 43% of Freelancers who vacation do not divulge their plans with clients; moreover, 41% of Freelancers hide from their intimate partner or vacation companions the client work they feel obligated to do while vacationing. Also, the data revealed a gender gap: 65% of female Freelance consultants reported they have felt the need to hide work they do while vacationing from their significant other and/or family, compared to only 41% of men — highlighting the fact that women feel more pressure than men to deprioritize their careers so that they can be fully available for their families.

Former Upwork CEO Stephane Kasriel, who is now head of Commerce and Financial Technologies at Meta, recognized that hesitancy to take time off for vacations is widespread and not limited to Freelance consultants and other independent workers. He pointed out that many American workers, whether full-time W2 employees or full-time or part-time Freelancers, often do not take the vacation time that they deserve (and W2 employees will be paid to take). Mental health professionals and leadership development coaches have long publicized the need for workers to physically and psychologically refresh themselves by stepping away from work to relax and/or take part in enjoyable activities with family or friends.

“Truly logging off is a common challenge for most professionals today, ” Kasriel said. “The Honeybook study surveyed self-employed respondents; other research, including data produced by Glassdoor, shows that the average employee who receives paid time off will have only used about 54% of available PTO in the past 12 months and of those who do take PTO, the majority don’t log off completely,” he went on to say. To remedy the dilemma, Kasriel suggested a few easy to implement vacation planning strategies that Freelance professionals can adopt to help themselves occasionally step away from work to relax and enjoy themselves for a few days.

7 steps to enjoying a relaxing and stress-free vacation

1. Know that it’s good to take vacations. Time off provides many health and productivity benefits, including improved energy, creativity, focus and decision-making ability, along with limiting the possibility of burnout. Putting aside work responsibilities every so often helps you become a more effective worker.

2. Create a vacation fund. Treat vacation time as an investment in you and plan for it in your business budget by earmarking what you consider a manageable amount to set aside each month to fund your annual vacation. Consider saving $100 a month for 12 months to finance a modest one week vacation. Do that and when the time comes to put down client work for a week, you’ll enjoy your vacation without worrying about taking on debt to pay for it.

3. Schedule vacations strategically. If there is a seasonal rhythm that influences your business cycle, or if you know of an important project that’s on the horizon, schedule your vacation in a way that enhances your ability to meet all milestones and the target completion date and enable yourself to completely avoid work responsibilities while you are officially out-of-office. Remember also that your vacation does not have to happen in July or August—every season has a unique appeal!

4. Roll in anticipated time off when calculating your project rate. Since Freelancers have no paid time off, consider this strategy—throughout the year, discreetly insert into project proposals additional hours that gradually allow you to accrue paid time off, via your project fees. An annual total of two to three weeks (10 – 15 business days per year) can function as your paid time off, buried in billable hours.

5. Give clients an early heads-up and firmly set expectations and boundaries. If it makes sense to let clients know that you’ll be off-line for a week or two, communicate that info immediately after confirming your vacation dates. In all communications — phone, email, text, in-person or video meetings — share upfront that you won’t be available or checking email while vacationing and remind clients again one week before your departure. Schedule meeting time to discuss the status of your projects so that everyone is on the same page and you won’t need to discuss work while vacationing.

6. Create an out-of-office auto-reply and turn off alerts. While you’re away, use technology to confirm that you are unavailable during specified dates. Remember also to turn off message notifications so that you can enjoy your vacation without constant interruptions.

7. Hire a virtual assistant. Virtual assistants aren’t as costly as you think. The going rate is about $8 an hour and many services do not entail lengthy contracts, hourly minimum amounts, or set-up fees. Delegating administrative tasks to someone else will allow you to focus instead on having a good time with your friends or family.

Thanks for reading,

Kim

Image: Dreamstime

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New Regulations Will Impact SMBs in 2024

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As if figuring out how to make a decent profit in 2024 won’t be enough to tie your stomach in knots, the federal government has arranged for the New Year to bring a passel of new regulations for Freelancers and small business owners to grapple with. While it’s true that business and labor regulations are created to promote fair, ethical and legal conduct and working conditions, what it takes to comply can sometimes place a burden on Freelancers and small business owners, who may struggle with the required paperwork, the costs of implementation and, always, the threat of penalties for missing a deadline or failing to comply. But cheer up, my friend, because one of the new rules will give you a spoonful of sugar (thank goodness!). Here’s the who, what, when and why of it all, coming your way.

Corporate transparency

As of January 1, 2024, most small businesses will be required to file a Beneficial Ownership Information (BOI) report with the federal government under the Corporate Transparency Act. The act is intended to increase transparency regarding business ownership and help law enforcement officials discourage the use of shell companies for money laundering, terrorism, fraud, or other illegal activities.

Under the CTA, new and existing businesses that meet the definition of a reporting company must file a BOI Report with the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN). The report provides information about the identities of the beneficial owners of the business, that is, those who directly or indirectly exercise significant control over the business or own 25% or more of the business. Entities formed on or after January 1, 2024, must also provide “company applicant information” about individuals who file business formation or registration paperwork and will have until January 1, 2025 to file the initial beneficial ownership.

Unless your entity is exempt, all corporations, limited liability companies and other reporting companies must provide the Treasury Department (FinCEN) with info about the beneficial owners, meaning, a list of those who either own or control the company. New businesses are also required to provide info about who prepared and filed the business formation documents. Reporting companies could face civil and criminal penalties if they don’t file the report. While the CTA may seem as if it applies to big corporations, the rule primarily impacts small businesses, including LLCs and S Corps with just one or two owners.

Domestic reporting companies are corporations, LLCs, limited partnerships and other business entities created by filing documents with the secretary of state or similar office, or with a Native American tribe. Foreign reporting companies are businesses formed in a foreign country that have registered to do business in any U.S. state or Native American tribe. A sole proprietorship or informal business partnership is not considered a reporting company and will not have any reporting requirements under the CTA. LLCs, corporations and limited partnerships must file beneficial owner information unless they fall within one of the 23 exemptions listed in the act. Most exemptions apply to larger companies and specific regulated industries, so small businesses and Freelancers who operate as a C Corp, S Corp, LLC, or limited partnership will likely need to file a BOI Report.

Small business loans

The Consumer Financial Protection Bureau’s Small Business Lending Rule would require affiliated financial institutions to collect and report data on small business loan applications, including applications from minority-owned and women-owned small businesses. The rule would also create the first comprehensive database of small business credit applications in the United States.

The goal is to create a database similar to what the mortgage industry has. Per the Home Mortgage Disclosure Act of 1975, banks collect data from residential mortgage applicants that includes geography, race, whether or not the loan was approved and at what interest rate. HMDA data is used by regulators and the public to look for possible signs of mortgage lenders discriminating against borrowers (redlining).

It’s often difficult for small businesses to obtain a loan because there may be scant profit made or an insufficient track record to assure banks of the owner’s ability to repay the loan on schedule. Women and minority-owned businesses especially find it difficult to obtain loans to grow their ventures. To encourage more transparency and equity around business loans, the CFPB in 2023 said it would require banks to begin reporting the demographics and income of small business loan applicants in 2024.

In rebuttal, some small business advocacy organizations claim that CFPB requirements will slow down the loan process and make it still more difficult for small businesses to obtain loans, not easier. Karen Kerrigan, Small Business & Entrepreneurship Council President and CEO, says the proposed regulations will “bury small businesses and financial institutions with costly and time-consuming paperwork, expose small-business borrowers and lenders to increased litigation and privacy risks, drive more small banks out of business and limit competition in the financial lending space”.

On October 26, 2023, the U.S. District Court for the Southern District of Texas issued a nationwide injunction prohibiting the CFPB from implementing or enforcing its Small Business Lending Rule, the CFPB has stayed deadlines for compliance with the small business lending rule for the moment. The U.S. Supreme Court may take up the matter, so those of you in search of a business loan may want to follow this issue.

National Labor Relations Board joint-employer rule

Also in October 2023, the National Labor Relations Board issued a revised joint employer rule, expanding the definition of “joint employer.” This means that two companies that are both responsible for some decisions about employees—such as a franchisor (entity that holds the trademark and grants license to use the corporate name) and franchisee (owner/operator of one or more individual franchise locations)—can both be held liable for unfair labor practices and the rule goes beyond franchises.

Backstory: in 2019, a group of 1,400 McDonald’s workers filed a lawsuit alleging that their employers had violated California Labor Code wage-and-hour regulations by denying them overtime pay and meal and rest breaks and also forced them to work off the clock. Furthermore, the suit alleged that as “joint employers,” both the Haynes Corporation, the franchisee that owned eight locations in Oakland and San Leandro, and the franchisor, McDonald’s, were responsible. Although the employees and Haynes reached a class-wide settlement, the court ruled that McDonald’s was not responsible, since it isn’t involved in “day-to-day operations” of the restaurants, despite them carrying the McDonald’s name. But on October 26, 2023, the NLRB issued a clarification of the joint employer rule, deciding that both franchisors and franchisees can be held liable for unfair labor practices and labor law can no longer insulate corporate franchisors from liability for what goes on at individual franchise locations.

Unions and workers’ groups say the new rule will benefit and help protect workers, but restaurant associations and other small business advocacy groups say it’s unfairly burdensome to owners. The rule was scheduled to go into effect on December 26, 2023 but pending Congressional and legal challenges, the NLRB extended the effective date of the new joint-employer rule to February 26, 2024.

Wages and overtime

Maybe you own a seasonal business and hire minimum wage employees to keep things going during the busy season? If so, you already know that hourly wages are rising and in fact, more than 20 states will have minimum wage increases in 2024, including Nebraska’s minimum wage increase of $1.50 to $12/hour on January 1, 2024, and Rhode Island’s increase of $1 to $14/hour.

There could be still more action on wages coming soon—in August 2023, the Department of Labor proposed a rule that would allow 3.6 million more workers to become eligible to receive overtime pay. The proposed regulation would require employers to pay overtime to salaried workers who are in executive, administrative and professional roles and earn less than $1,059 a week, $55,068 /year, as full-time employees. That annual salary threshold was increased from $35,568.

Karen Kerrigan, President and CEO of the SBE Council (and who also opposed collecting demographic info on small business loan applicants, as discussed above) said she expects that when the final rule is handed down it will face legal challenges, since raising the minimum wage would have a big impact on many businesses. The Labor Department may issue the final rule sometime in 2024. Kerrigan said, “That’s going to have a lot of disruption for small businesses in terms of cost, but also the models they may use in their workplace in terms of career growth models, compensation models, etc.”

$600 online payments reprieve

I’ve saved the best for last! In November 2023, the Internal Revenue Service for the second time delayed activating the requirement that payments of $600 or more for goods and/or services provided by you and sent to you via Third-Party Settlement Organizations, e.g. payment apps like Venmo and Zelle or online marketplaces like Amazon or Etsy, must be reported on IRS Form 1099-K as taxable income. The requirement was scheduled to go live in tax year 2023.

Instead, the IRS has instituted a threshold of $5,000 for tax year 2024 that will introduce a phase-in of what will eventually include the Form 1099-K $600 reporting trigger for TPSO payments received. The IRS in November 2023 said that in tax year 2023, 1099-K reporting will continue to be required only of Freelancers and others who received $20,000 or more in annual gross TPSO payments for 200 or more sales transactions in that year. Beginning in tax year 2024, the TPSO annual gross payments threshold for Form 1099-K reporting will be lowered to $5,000. 

Thanks for reading,

Kim

Update: In response to a suit brought by the National Small Business Association against the Treasury Department, the U.S. Federal District Court for the District of Alabama ruled on March 1, 2024 that the Corporate Transparency Act is unconstitutional. Presiding Judge Liles Burke granted the plaintiffs’ motion for summary judgment and issued a permanent injunction after finding that the CTA “exceed[ed] the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress’ policy goals.” The ruling was handed down only two months after the CTA went into effect on January 1, 2024 and an appeal by the Biden administration is expected.

Image: © (Getty Images) James Stewart (R), as a caring community activist, points at Lionel Barrymore (L), a “greed is good” style real estate baron and banker, in a scene from It’s a Wonderful Life (1946, produced and directed by Frank Capra).

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Survey: Freelancing in America 2023

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Upwork, the global marketplace that connects businesses in need of capable and reliable Freelance professionals and talented independent workers who are looking to generate billable hours, has just released the results of “Freelance Forward: 2023,” the 10th annual comprehensive study of the U.S. independent workforce. The study found that 64 million Americans participated in Freelance work during the past year, adding 4 million more self-employed workers over 2022. Freelance workers now comprise 38% of the nation’s workforce and contributed nearly $1.27 trillion to the U.S. economy in 2023.

Highly skilled professionals

Most Freelancers perform highly skilled professional work. Nearly half (47%) work in the knowledge economy and provide B2B services such as computer programming, marketing, IT, graphic arts and business consulting. Another 23% of Freelancers create influencer and other marketing content that fuels livestreams, social media videos and images, blogs and newsletters. 

Freelancers are also at the forefront of embracing new technologies. When asked about generative Artificial Intelligence use in the past three months, Freelancers were 2.2 times more than traditionally employed workers to say that they frequently use generative AI tools. In total, 20%, approximately 12.8 million Freelancers, use generative AI tools regularly (multiple times per week), compared to just 9% of traditionally employed professionals. When asked the functions for which Freelancers use generative AI, research (46%), brainstorming and ideation (35%), translation (33%), proposal writing (32%) and coding (28%) ranked at the top. 

Why we Freelance

Results of Freelance Forward studies produced over the the study’s 10 year history show that respondents enter Freelancing for various reasons, but flexibility and control consistently emerge as prime motivators. Beyond earning a living, when asked about reasons for Freelancing, “to have flexibility in my schedule,” “to be in control of my own financial future” and “to work from the location of my choosing” top the list. This is mainly because unlike traditional employees, whose work schedules are largely imposed by the company, Freelancers are our own bosses. We determine when, where and for whom we will work and therefore, we are able to control our schedules and lives.

The evidence of this freedom is apparent in where Freelancers perform our work. Although return-to-office mandates have brought many professionals back to their cubicle, the majority of Freelancers work from home, at a co-working space, or in another location of their choosing. In fact, 60% of Freelancers work remotely, as compared to just 32% of traditionally employed professionals who work remotely. Furthermore, Freelancers also choose the hours and amount of work they’ll do at a given time. While 77% of Freelancers say they work consistently, they do so based on a schedule that best suits their lifestyles.

The future is Freelance

Freelancing continues to grow as a viable career choice for professionals and according to survey participants, the future of Freelancing remains bright. To understand the future of Freelancing, survey respondents were asked to assess their feelings of optimism, or pessimism, ahead of 2024. Overwhelmingly, Freelancers are optimistic about prospects for their professional growth (80%), personal income and revenue increases (76%), opportunities to earn billable hours (74%) and personal development (84%). When asked about the future, 85% of Freelancers say the best days for Freelancing are ahead. Key findings of Freelance Forward 2023 include:

  • Freelancing remains a significant part of the U.S. labor market and economy: Freelancers contributed $1.27 trillion in annual earnings to the U.S. economy in 2023. This was a 78% increase from the estimated $715 billion contributed to the economy in 2014, the first year of Freelance Forward.
  • Freelancing hits a new all-time high: The number of professionals Freelancing increased to 64 million Americans, or 38% of the U.S workforce, an increase of 4 million from 2022.
  • Freelancers are 2.2 times more likely to regularly use generative AI frequently in their work: 20% of Freelancers use generative AI tools on a regular basis (multiple times per week), which compares to just 9% of traditionally employed professionals.
  • Nearly half of Freelancers provide skilled knowledge services: 47% of all Freelancers, or nearly 30 million professionals, provided knowledge services such as computer programming, marketing, IT, and business consulting in 2023.
  • A quarter of Freelancers are creating influencer-style content: 23% of all Freelancers, or 14.7 million professionals, created influencer content including livestream services, social media videos, images or blogs in 2023.
  • Generation Z and Millennials are the most likely to explore Freelancing: In 2023, 52% of all Gen Z professionals and 44% of all Millennial professionals performed Freelance work.
  • Older Americans continue to be part of the Freelance market: In 2023, nearly 8.3 million professionals, or 13% of all U.S. Freelancers, were aged 59 or above.
  • The future is bright, according to Freelancers: Over 85% of Freelancers say the best days are ahead for Freelancing.

Happy New Year and thanks for reading,

Kim

Image: Frontal Lobe Coworking, located in the Nationally Registered historic downtown of Howell, MI, opened in 2013 with the intention of attracting workers to a shared office space while also utilizing empty downtown buildings.

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Saving for Retirement Gets Easier

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Many Americans are unable to adequately save for retirement–or for any other reasons, including emergencies and post-high school education, unfortunately. Rising prices and decades of stagnant wage growth have contributed to both the inability to cover more than basic living expenses and increasing debt. It’s a recipe that undermines saving for the future.

This is not to say that Americans don’t understand the need to save for retirement. Just about everyone knows that once you’ve retired, Social Security cannot replace your entire annual income for the rest of your life. This sometimes results in a cash-flow gap for retirees that until the early 1980s was usually remedied by an employer sponsored defined annual pension benefit but thereafter, most employers chose to address the shortfall with a 401(k) plan. The difference is huge.

A defined pension pays recipients a specified monthly benefit at retirement. The employer funds the plan by contributing a regular amount, usually a percentage of the employee’s pay, into a tax-deferred account. Depending on the plan, employees may also make contributions. Typically, pensions are calculated through a formula that considers the employee’s salary and length of service.

The 401(k) plan, and also the 403(b) plan, by contrast, are defined contribution plans, as are employee stock ownership and profit-sharing plans. A defined contribution plan does not promise a specific amount of benefits at retirement. In this scenario the employee, the employer, or both contribute to the employee’s retirement account, often at a set rate, such as 5 % of annual salary each year. The employer usually works with a major financial services company that invests the retirement funds on behalf of company employees. Upon retirement, the employee receives the balance in the account, which is based on contributions plus or minus investment gains or losses. The value of the account will fluctuate due to changes in the value of the investments made.

The defined pension plan has nearly disappeared from the American landscape. For the most part, only city, state and federal government agencies offer a traditional pension plan to employees. Although we’ve had about 40 years to adjust to the next wave of retirement funding, the update has been a challenge. According to a survey published last October by the financial services company Bankrate, 56% of working Americans reported that they’re behind on their retirement savings goal. Furthermore, the general savings rate for Americans has fallen to an all-time low, according to the Bureau of Economic Analysis. The average American had saved 2.3 % of disposable income as of October 2022, down from a 7.3 % savings rate reported in 2021—but that figure was impacted by the pandemic, when people couldn’t get out and spend. Those are very disquieting statistics but in December 2022, Congress approved legislation that should provide a ray of sunshine to brighten the day.

The Setting Every Community Up for Retirement Enhancement (Secure) Act 2.0 Act is intended to change at least two depressing and embarrassing statistics: first, that nearly 75 % of small businesses do not offer retirement plans to their employees and second, to grow the percentage of Americans who not only contribute to a retirement plan but also encourage and enable them to start saving for retirement earlier in life. The idea is to allow retirement savings to grow over a longer period of time and result in a more financially secure retirement for you.

401(k) automatic enrollments

The enhanced rewards that come from saving for retirement will take time to kick in. Beginning in 2025, small businesses will be required to automatically enroll employees in 401(k) or 403(b) retirement plans, with a contribution rate between 3 % and 10 %. The employee contribution limit for 401(k) plans will be raised from $19,500/year to $26,000/year to encourage and reward more robust retirement savings, per Secure 2.0. Also, employers must offer retirement plan benefits to part-time employees who’ve worked for them for at least two years. Businesses that are less than three years old, or those that employ 10 or fewer employees, are exempt. Moreover, employers must explain to employees that they may opt-out of the auto-enrollment feature (maybe the spouse has a better retirement plan).

Another new feature of Secure 2.0 is the Starter 401(k), designed for small companies that currently do not offer a retirement plan to employees. The Starter 401(k) is not subject to year-end nondiscrimination testing (an additional compliance measure that examines if a business is fairly distributing its plan) and caps annual contributions at the same amount as the Individual Retirement Account (IRA) limit. The maximum contribution for an IRA account was $6,000 in 2022 and $7,000 for those older than 50.

Tax credits sweetener

Many options in the retirement benefits market haven’t been accessible to small businesses because private sector plans were designed to serve companies with 100 + employees but finally, SMBs will receive additional relief from costs associated with offering retirement plans through Secure 2.0. Previously, employers with fewer than 100 employees were eligible for a three-year, start-up tax credit that covered up to 50% of administrative costs, with an annual limit of $5,000. The new law has increased this credit to 100% of qualified start-up costs for new plans sponsored by employers with up to 50 employees. While costs to start retirement plans vary on the basis of a business’s size and the type of plan, the enhanced tax credits should cover a majority of an employer’s out-of-pocket costs for the first three years.

In addition to addressing the larger national economic issue of retirement savings, Secure 2.0 confers yet another advantage to SMBs—an opportunity for to improve their benefits package, which can attract talent. Benefits can be a competitive advantage when it comes to hiring, whether you operate a neighborhood breakfast and lunch place or a medical equipment company.

Retirement Plans for Freelancers

You didn’t think I’d leave you out of the mix, did you? Here’s an overview of tax-deferred and after-tax retirement savings plans that work well for Freelance professionals. Most feature similar options to save for retirement as employees participating in company plans.

Simplified Employee Pension (SEP)

  • Contribute as much as 25% of your net earnings from self-employment (not including contributions for yourself), up to $66,000 for 2023 ($61,000 was the 2022 limit).
  • Open a SEP-IRA through a bank or other financial institution.
  • Set up the SEP plan for a year as late as the due date (including extensions) of your income tax return for that year.

401(k) plan

  • Make annual salary deferrals up to $22,500 in 2023 ($20,500 was the 2022 limit), plus an additional $7,500 in 2023 ($6,500 in 2022) if you’re 50 years or older either on a pre-tax basis or as designated Roth contributions.
  • Contribute up to an additional 25% of your net earnings from self-employment for total contributions of $66,000 for 2023 ($61,000 was the 2022 limit), including salary deferrals.
  • Customize your retirement plan to allow access to your account balance through loans and hardship distributions if you must.

A one-participant 401(k) plan is sometimes referred to as a solo-401(k) or individual 401(k). It is generally the same as other 401(k) plans, but because there are no employees other than your spouse (if s/he works for the business), the plan is exempt from discrimination testing.

If you are a Schedule C a sole proprietor and have a SIMPLE IRA plan, you are treated as both an employer and an employee when calculating and reporting your own retirement plan contributions and limits. Report both your salary reduction contributions and employer contributions (non-elective or matching) for yourself on Part II – line 15 of Form 1040 Schedule 1. Note that this is different from reporting employer contributions (non-elective or matching) for your employees, which you record as a business expense on Schedule C.

Maximum annual contribution SIMPLE IRA

Re: your salary reduction contributions, you may defer up to $15,500 in 2023 ($14,000 was the 2022 limit) however, you may not exceed your net earnings from self-employment from the business sponsoring the SIMPLE IRA plan. If you are age 50 years or older , you can make a catch-up contribution of up to $3,500 in 2023 ($3,000 was the 2022 limit).

When you are an employer

Employer contributions for yourself must be the same type and rate as the contributions you make for your employees. You must either:

  • match your salary reduction contributions dollar-for-dollar up to 3% of your net earnings from self-employment; or
  • make a non-elective contribution of 2% of your net earnings from self-employment that do not exceed $330,000 in 2023; ($305,000 was the 2022 limit).

Thanks for reading,

Kim

Image: Enjoying retirement at Seabrook Island, near Charleston, SC