A friend asked me about taxes and freelancing recently. This crops up often enough that I thought I’d share my answers with the rest of the world–well, really the US, as that’s where I pay my taxes. I’ve run freelancing business seminars that have covered this in the past, so this is going to be the encapsulated version.

Note that I’m not an attorney or an accountant, just someone who’s had to deal with this a lot over the years. This is complicated stuff and can vary from state to state, so for expert advice, I recommend contacting one of each in your area.

Any money you make from freelancing is subject to self-employment tax (assuming you’re not incorporated, but more about that in a minute). The self-employment tax in the US is 15.3%. According to Wikipedia: “Half of the hypothetical self-employment tax is allowed as a deduction against self-employment income so only 92.35% of the self-employment income is taxable at 15.30%, an effective tax rate of about 14.13%.”

For regular employees (W-2 folks), the employer covers half of the employee’s payroll taxes (Social Security, Medicare, and FICA). That’s half the self-employment tax rate, or 7.65%. W-2 employees split the taxes with the employer, but the self-employed have to pay both halves of that. This means that you effectively take a 7.65% penalty to be self-employed.

On top of that, like everyone else, you have your standard income tax bracket, which depends on how much you make during the year and how you file. Most folks fall into the 15% bracket, or really $1,565.00 plus 15% of the amount over 15,650. (That’s 10% on the first chunk and 15% after that.)

When planning your budget, though, you need to make sure you put away that tax money aside, because you won’t have the enforced discipline of your employer withholding the taxes from your paycheck like they do for W-2 employees. Instead, you’ll end up having to pay quarterly estimates (look for the 1040-ES forms) to make sure you don’t get nailed with a penalty at the end of the year.

If you wind up making more than, say, $35k in a year, it might be worth it to incorporate as an LLC or S-corp. You then hire yourself and pay yourself a small but reasonable salary. That way you only pay the payroll taxes (that total 15.3%) on the salary you earn, while the rest only gets taxed at the standard income tax rates.

I run my business as an S-corp and have saved thousands of dollars every year that way. This does limit your social security funding, which may come back to hurt you later, but that’s only true if social security doesn’t change a great deal between now and when you’re old enough to collect it.

Incorporation comes with a pile of paperwork you have to deal with on a monthly basis, but it also provides you with a layer of personal protection should someone somehow wind up trying to sue you over your work. Also, for a number of good reasons, some large businesses prefer to hire corporations for contract positions rather than individuals. Others insist on it.

One of the secrets to success at freelancing is recognizing it for what it is: a business. If you want to do well at it, treat it that way and get professional advice to help you make the most out of it. Good luck!

A friend of mine who writes roleplaying games (RPGs) asked if I had any advice for someone who wanted to branch out of that and into fiction or comics. Since I get similar questions from others, I thought I’d share my answer here.

I think branching out of gaming work–or at least diversifying into other fields–is a good move for anyone interested in making a living at writing. Sadly, it’s not all that easy. While working in tabletop games gives you lots of skills you can apply to other fields, it doesn’t give you the kind of credits to make editors or publishers in those fields sit up and notice.

Still, there are some things you can do. For novels, approach Games Workshop and Wizards of the Coast and express your interest. Unless you’ve completed a novel (published or not), though, they’re not likely to sign you on straight away. Finishing a novel is a monumental task, and not one everyone can manage, no matter how much they might wish.

However, they might be willing to start you out with some short stories and allow for a chance to build some trust between you. GW often has anthologies in the works, and this is a great place to start. At the same time, you could start writing an original novel and then go shopping it around. Even if you never sell it, having a completed manuscript in hand can help open doors for you.

For comics, it’s very hard to break into DC or Marvel as a writer unless you a) work for them or b) are famous in some other field. Your best bet here is to find a smaller publisher interested in working with new writers, places like IDW or Boom Studios. Even these places are hard to crack, though, as there isn’t always enough work to go around for even the longtime comic pros.

You might also consider writing nonfiction books or web articles. The advances on nonfiction books are often much more than you would get for a novel and can be as little as a third of the length. Writing articles for large websites can also net you five times as much as writing for tabletop games.

It’s also possible to find work as a writer for computer games. There aren’t that many freelance gigs around for such projects, but when you track them down they pay fairly well. Your experience in tabletop games should serve you well here, but you need to be a video game player too in order to be able to make this leap. Check out the IGDA Writers SIG for good ways to get started.

I’ve also made excellent money working on collectible games and toys over the years. These projects are demanding, but the payouts are fantastic because the audiences are so much larger.

As with any type of writing, the key is to stick to it and keep learning as you go. Be polite, patient, and make friends with everyone you can. If you have the talent, the guts, and the desire, you can knock down any door.

If you don’t mind, I’d like to turn this into a blog post. I’d strip our your name and details, of course, but I get questions like this often enough that I think others could benefit from the answers too.

My friend Liz Danforth sent me the following email about a research survey being done with players of World of Warcraft. If you’ r, see what you can do to give her a hand.
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Jeff Tidball pointed me to this post on Peter Hentges’s LiveJournal earlier today. Peter did some great work on the Ars Magica and On the Edge games back in the day, although he’s not been professionally involved in the games industry for a while. More recently, he’s worked in IT, helping out with web design and business analysis.

To sum it up, he’s in a spot. His partner Ericka suffers from debilitating, long-term illnesses, he’s out of work, and they’re about to be evicted from their house. He’s looking for work that will not take him from his Minneapolis home in which he spends much of his days caring for Ericka. If you have any leads for such gigs, be sure to email him and let him know.

Thanks!

Will Hindmarch‘s latest article about The Lord of the Rings Online (which I edited) is now up on the official website. “Hero’s Guide to the Lone-lands” covers a vast swathe of land that includes the notorious Weathertop, at which Strider saved Frodo from the Ringwraiths. Go check it out, if only to see the gorgeous screentography.