The IRS and the Freelance Dilemma
Bora Pena is a 27-year old artist and compositor working the New York freelance circuit. “I prefer freelancing. I have my rate, I have my freedom. I’m not ready to be tied down; I’m in a creative industry where I’m doing motion graphics one day, but next week I might want to become a cartoonist. Freelancing is the only way you can say ‘I’m dying, I’m going to take a three-month break.’ If you’re a full-timer, you’re stuck.”
Pena remembers the good old days not all that long ago of freelancing: “It was a lot easier when the industry was flourishing to invoice a client, get your check the next week and put it in the bank – it was almost like going to an ATM, it was intense. There was so much money being thrown around – you could permalance for months and months and months. You’re accumulating tons of great checks every month, and you’re in New York.
It’s a lifestyle; you’re working constantly. It’s a creative industry and unfortunately some of us are uncontrollable when it comes to spending, because you don’t realize how valuable it is to save some of it until the end of the year. I made my mistakes when I started out; when tax time came around I owed $20,000 and I wound up on an IRS payment plan.”
Pena attended an MBO presentation while working at Psyop this past summer. “MBO and another company came to Psyop. All the freelancers I work with liked what MBO had to say; they were all older than me and they chose MBO.” He credits the company with helping him simplify and discipline his financial life. “I invoice MBO, I list the number of days I work through them. Everything is on the record – I can log onto my [page on the MBO] website and see everything I’ve done.”
In his bad old freelance days, Pena would accumulate a mountain of receipts to dig through every year at tax time, but after signing with MBO “you get into the groove you submit your expenses every week you know how many are getting approved based on tax-related reasons. At the end of the week MBO invoices the company and you see everything right away – when the invoice was sent, when the company approved it. It’s easier to keep track when you don’t have to keep track of the numbers – all you have to do is log into the website and see what the latest update is.
“The employer pays MBO, MBO takes taxes out and pays you. The money you’re getting you can actually spend.” Pena tempers his enthusiasm for MBO, noting there are “pros and cons” to the relationship. “The con is you’re going through a middleman – you have to learn to trust these people – what they’re taking out why they’re doing it.” He adds that the company’s presence in New York only dates back to this past summer, and hasn’t taken him past tax season yet. “We’ll see how it plays out. We’re all naturally impatient because we live in New York.”
Joe Strike has written about animation for the New York Daily News, Newsday, and New York Press. He is currently teaching Mass Communications at New York’s St. John’s University and hosting “Interview With An Animator” at Pratt Institute. He has scripted for the Nickelodeon series Wow! Wow! Wubbzy!, adapted anime scripts into English and worked on the children’s TV series The Great Space Coaster and Pee-Wee’s Playhouse. After helping launch the cable service formerly known as the Sci-Fi Channel, Joe wrote and produced programming featuring celebrities like Stan Lee, animator Ralph Bakshi and the cast of Mystery Science Theatre 3000.
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I like how they take 5%. Just do your taxes at the end of the year and they'll be no problems. As for the companies, they should pay payroll taxes as the law requires and they'd have nothing to fear from the IRS.
As someone who has been staff but mostly freelanced for the past 15 years in NYC this is a great article. Taxes kill us freelancers at the end of the year and if this and other companies help out it could be a real headache saver. But it definitely takes makes freelancers less autonomous and responsible for themselves so it also raises some good questions.
As a longtime freelancer, your article raises some concerns that I had never really considered, including some that could work to my advantage. Interesting.....
Wow, I had never heard of anything like this before, but this was a really interesting article that made a lot of sense. I'm curious to look into this more and see if it's something I should be doing because I HATE getting to tax time and am really bad about taking out the right amount for taxes, something that drives my accountant (and my checkbook) crazy.
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