A Practical Money System For Creatives With Unsteady Income

Freelancing can feel like financial roulette: a $1,000 project lands, rent is due, and suddenly there’s nothing left to set aside for taxes. We get honest about why creative careers and independent contractor work are uniquely stressful, then lay out a practical framework to make your money steadier even when your income is not. From the first step of building a real budget to understanding what it actually costs to run your work like a business, we focus on clarity over hustle.

We also dig into the tax reality that blindsides so many new 1099 earners: self-employment tax. We explain why that extra 15% shows up, how to plan for it, and how to think about deductions in a clean, documented way using Schedule C. If you have ever wondered whether you need an LLC to write things off, or what “sole proprietor” really means, we walk through the basics and share the moments when it’s smart to talk with an accountant and a lawyer about changing your business structure.

One of the biggest takeaways is surprisingly simple: separate your business and personal money. We talk about opening a dedicated account (even early), making recordkeeping less painful, and building habits that fit a busy creative life. If your income is seasonal, cyclical, or just plain unpredictable, you’ll leave with concrete strategies for emergency savings, retirement planning, and smoothing cash flow across the year.

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Transcript

Welcome To My Pocket FP

SPEAKER_00 0:03

Welcome to My Pocket FP, the podcast where your wallet finally meets its financial planner and they actually get along. Join your host Jason Taylor, certified financial planner, money sensei, and your guide to financial freedom. Whether you're planning for retirement or just trying to figure out where all your money went last weekend, we've got you covered. Get ready to take control of your financial life with smart tips, surprising insights, and yes, an app that fits right in your pocket. This is My Pocket FP because your future deserves more than guesswork.

Why Freelance Money Feels Different

SPEAKER_02 0:46

Freelancers and creatives often juggle unpredictable income, shifting tax obligations, and the pressure to manage money without a traditional employer safety net. So today we break down what makes our financial world so unique and how to build stability in a career that rarely sits still. Welcome. I'm Julie Schwenzer with Jason Taylor, certified financial planner and creator of My Pocket FP. So, Jason, we're so excited to talk to you. How do you approach financial planning? How is it so different for freelancers and creatives?

SPEAKER_01 1:20

Yes, thank you, Julie. Well, you know, as with most financial planning, it all starts with the beginning. Most uh people who go off to work on their own or freelance, they dive right into their passion. Um, and they, you know, they do paintings, they uh, you know, do woodworking, they do something that they love and dive into that side of it and don't really look at the financial aspects of uh the business.

SPEAKER_02 1:45

And then what happens you find that somebody may have shifted from having a steady paycheck to not having something consistent, where do they start to possibly lose sight of like keeping track of what they're doing and what they're spending?

SPEAKER_01 2:00

That's a very good question. It actually happens when they need the money. It happens a lot with uh you know people who do like handyman work. They can go out and charge someone $1,000 to do something and they need that to pay the rent. And so they don't keep anything aside for taxes because it is they need it, need it, need it.

SPEAKER_02 2:20

Oh, yeah, and you started your own business too. So I'm sure in the beginning there was that that world of like that overlap between freelancing and and you know, as a business owner too. But it's always a question of what can I deduct? And if you are just reporting as a you know, 1099, then can you deduct certain things? Do you have to be an LLC registered under a certain category to be able to deduct things? And how do you show that to the IRS? Like if you're a like you mentioned, an artist painting um the paint, the brushes, or if you are not an artist, let's say you're a content creator, that's where it gets like into the gray area. What do you know? How do you deduct and what can you deduct?

Start With A Real Budget

SPEAKER_01 3:05

Yes, well, I think the starting point you need when you're making that transition from you know W-2 employee to uh a contract person or uh you know sole proprietor is a budget. Um, not only a personal budget, but kind of an idea of what it's gonna cost to run the business you want to run. Because a lot of people get stuck there too, because it ends up costing a lot more than they think. Um, you know, like you brought the artists, you know, paint is expensive. Canvases are expensive, and they need to know that before they start putting prices on their paintings. To go back to your other question about taxation, um, that's the nice thing about the tax code is you can start uh out and just as a person um make income and write off um your expenses for the business.

SPEAKER_02 3:52

And then what if you don't have and uh like you don't have a LLC or anything and you just are reporting as a 1099 and that's it? How do you go about that? I mean, just find a really great accountant.

SPEAKER_01 4:06

So no, it's it's easier than that. You really just need to put everything on the schedule C. Um, all your income, all your expenses go on the schedule C of the tax return. And so that's really the only difference. And you would just kind of monitor how much you make before you take the next step to an LLC or an S corporation.

SPEAKER_02 4:24

And then going back to what you mentioned about taxes and the amount that people wind up having to pay, what have you found with clients and uh you know elsewhere in your professional experience when it comes to the actual amount and reality of what they're expecting?

The Self Employment Tax Surprise

SPEAKER_01 4:41

So uh the one of the biggest issues is the the self-employment tax for uh businesses or sole proprietors or freelancers, however you want to call it. And that's the 15% tax, which is uh basically the uh you are the employer at that point, so you're paying both sides of Social Security, which normally the employer pays half, you pay half, it's on your paycheck and you never see it. So that 15% catches a lot of people off guard that first year.

SPEAKER_02 5:11

And when somebody is a sole proprietor, what does that that mean in terms of business terms?

SPEAKER_01 5:18

Uh basically it means they're on their own, sold.

SPEAKER_02 5:22

Yes.

SPEAKER_01 5:22

They're they're running, they're running a business rather than working for someone.

When To Form An LLC

SPEAKER_02 5:26

Sure. Another question that a lot of people have is like, let's say you know things are picking up and they're like, you know, maybe I need to actually register myself as a business and stop just collecting amounts and then having like the income pass through my regular taxes. I mean, maybe you could explain all that. Do you recommend that people form a business?

SPEAKER_01 5:47

It's always a good discussion to have with a lawyer as well. There's could be some legal liabilities. Um, purposes to you know, change from uh sole proprietor to a LLC or an S Corp. Anytime you bring on employees or a partner, it's good to consider a new classification for your business or to change your type of business. Uh, another time is if your income starts getting really high. Generally I look at like 40,000 in income plus. Is it another good time to kind of take a look at uh restructuring your business?

SPEAKER_02 6:19

And then what about you personally? Because you did start this business and I'm believe you did work at another company. I mean, maybe you could walk us through that and then what you had to do to set up your company. And also, did you start out taking clients as you know, a freelancer and then work your way up and build this company?

SPEAKER_01 6:40

Yeah, so in the financial world, you do start out with a prudential or ing, and then you can go work with them and be independent at the same time. So you can transition from being an employee to being a sole proprietor agent as well, or uh statutory agent for them. Which means then you start, you know, writing off your expenses and your pay structure gets changed a little.

SPEAKER_02 7:02

And you started early. I mean, you were good at keeping records, right?

SPEAKER_01 7:06

From a very young age, because Yeah, being a third generation accountant who kind of learn to keep track of what's coming in and what's going out.

SPEAKER_02 7:14

And then what about creatives and freelancers? What about financial planning for the unexpected? What do you find? You mentioned this earlier. What are in addition to taxes, what are other surprises that you've seen clients have when it comes to expenses?

Separate Accounts To Protect Deductions

SPEAKER_01 7:32

Uh before we dive into the actual expenses, I'd say it's it's important they set up two different bank accounts too. One specifically for the business. We haven't mentioned that yet. And that's important in order to you know track expenses better. And also the IRS likes to see personal and business separated, or they might say you can't take some of those expenses. As far as surprises, uh, I think one of the big surprises is how it's not smooth. Like you're not paying the same amount every single month. Um, there are ups and downs in almost every industry. Take tax preparation, for instance. You have an income from February, March, April, and May. That's four months a year. So if you're in the tax prep business, you have to plan for the other eight months of income. Or learn how to spread it out over 12 months. And that's the same with a lot of seasonal work, like landscaping, uh, mowing lawns, that's seasonal work.

Planning For Seasonal Income Swings

SPEAKER_02 8:29

And then what about building long-term wealth when your income is not consistent? I mean, what are some strategies you have or some advice?

SPEAKER_01 8:39

Yeah, and you know, I I hate to be a cliche financial advisor, but it really comes down to knowing where your money is, where it's going, and starting with that budget or whatever, what fun word you might have for uh seeing your cash flows. But that is definitely the place to start for your business and for you personally. That way you can live under your means. Uh, so you can put money aside into you know emergency savings, into retirement, and really, you know, be prepared for those slim months.

Make Bookkeeping A Monthly Ritual

SPEAKER_02 9:08

And what do you suggest for how they record their expenses and their their income? Is this, I mean, obviously it'd be nice if everybody would do that on a daily basis, you know, every business day, but that usually doesn't happen. What do you suggest for best practices with somebody who's very busy and doesn't like keeping records?

SPEAKER_01 9:27

For me, I'd say make it fun. You know, block it away two hours. Um, I like to go sit on my deck uh with my laptop and maybe you know a nice adult beverage or an iced tea or something, and just kind of two hours a month, just sit down and try to wrap my head around everything. But make it fun. I've gone to you know my local coffee shop. We have you know a lot of microbreweries here. I'll go there and do it. Get out of the office, get out of the house, uh kind of make it an event. Um and it happens more often if you do that.

SPEAKER_02 10:01

Yeah, sure. When you know you're starting out and you are taking um independent contractor projects. You mentioned the two bank accounts, right? When you're starting out, that would be two personal accounts, then, right? Because you can't have a business account unless you have an actual business like set up but with a state.

SPEAKER_01 10:20

You actually can. You can do a trade name.

SPEAKER_02 10:22

Okay.

SPEAKER_01 10:23

You can set up a trade name with the IRS as well and get a tax ID number. And then open the bank account with the trade name and tax ID number.

SPEAKER_02 10:31

Oh, see, that's good to know. I did not know that. So there's ways to go around it without having to do the full setup and still be able to track your expenses separately. So that's great. Exactly. Yeah. That seems to be the number one advice I've heard many times is that keep it separate. Always keep it separate.

SPEAKER_01 10:47

Exactly.

SPEAKER_02 10:48

Because then then it becomes very challenging if you do get audited, and then that's a nightmare there, and then you can't do your creative work because you're busy with these fun reports.

Mentors And The Best Next Steps

SPEAKER_02 10:59

Any other advice you have for creatives and freelancers?

SPEAKER_01 11:02

I think I I've mentioned this in the past. Um, but when you're going off on your own, it's a very good idea to find a mentor, someone who can guide you in pricing, guide you in you know, the cyclical um, you know, flows of the business and really kind of you know show you the ropes so you're not trying to reinvent the wheel.

SPEAKER_02 11:23

Yeah, absolutely. Don't make it harder on yourself, right? If you don't have to.

SPEAKER_01 11:27

Exactly. Yeah.

SPEAKER_02 11:28

Well, yeah, we appreciate everything, Jason. You always have been so helpful with your insight and just helping us to think about those other details that can really make a difference. So thank you.

SPEAKER_01 11:38

Great. I hope it helps.

Download The App And Wrap Up

SPEAKER_00 11:43

Thanks for tuning into My Pocket FP, where we believe small monthly changes can make big positive changes in your financial end game. If you're ready to level up your money game, head over to mypocketfp.com and download the app today. Your financial planner is now officially pocket sized and doesn't charge by the hour. Until next time, keep your goals high, your debt low, and your pockets smart.