What is a freelancer?
A freelancer can be defined as someone who earns money or is paid on a per-job or per-task basis. This means that there is no set monthly income that they expect, as their income is dependent on their output and the work they were able to produce during that month. Although it can be over an extended period, freelance agreements are usually on a short-term basis, based on work that needs to be delivered for a certain campaign, for example. There are many benefits of freelance work, however, some people are quite wary of it because of how short-lived it can be and the fact that it often does not allow for long-term financial planning.
Many freelancers appreciate the level of freedom that comes with it, because unlike traditional workplace conditions, freelancing usually allows you to work remotely and merely deliver what is expected. This means that the possible micro-management element that may creep up in some companies falls away, whilst also allowing you to have the freedom and flexibility to plan your days as you wish. This, in turn, could promote a better work-life balance.
General tax requirements
In terms of finances, it is widely believed that freelancers earn a better hourly rate, meaning that they can make a considerable amount from just one project. Much like any other employee, the income that freelancers make is taxable. The applicable rates and provisions, if any, differ in each country, therefore, it is important to check this as a freelancer and ensure that you are paying the required tax. Some freelancers tend to overlook the tax aspect because it can be quite daunting, but that is highly advised against. When it comes to taxes as a freelancer, you need to consider registration and applying for a tax directive, understanding tax deductions and VAT, as well as international issues. Because freelancers have the opportunity to work with international clients, understanding the tax laws that apply in those regions of interest is also important. Additionally, the foreign exchange elements is also a key consideration, and freelancers that may have an understanding of forex trading and investments could benefit from their knowledge on currencies and exchange rates.
Consequences of non-compliance
As much as the applicable tax rates differ in each country, so do the consequences. In most countries, however, failure to comply with the tax regulations may result in penalties, fines or even imprisonment, in worst-case scenarios. Some people may be able to avoid paying tax and think they have gotten away with it, but that is not the case. Regulatory bodies and authorities are able to draw up historic data and get a holistic picture of your income and earnings, which means that the tax due y you can be calculated at any time. Consequently, you could ultimately rack up a huge tax bill and find yourself having to pay it with added penalties. While you may be able to get away with it temporarily, it will eventually catch up with you and may even prevent you from pursuing other income-generating opportunities.