The Surprising Cost of Working Freelance

As your own boss, you'll have to buy your own office supplies. And if your computer breaks down, you have to pay to replace it or to get it fixed.

Still, when you work freelance, some of your other costs go down. For instance, you don't have to spend as much money on work clothes, dry cleaning and child care because you're working from home. These differences may help to mitigate your freelance expenses.

With a sluggish economy, Kanarek advises people not to start a full-time freelance business. She suggests first trying it part-time to ensure it's something you'll like.

Kanarek says if you can't make enough money as a freelancer, you should probably make it a sideline.

If you're an employee, your company pays half of the tax for Social Security and Medicare. But as a freelancer, you pay the whole thing.

Fortunately, you can offset that new expense with all of the tax deductions you're now eligible for as a self-employed person, Goodman says. For example, you can deduct the cost of your home office, office supplies and insurance premiums.

However, all of these deductions make doing your taxes more complicated. That's why Goodman and Kanarek recommend that you hire a professional to do your taxes.

"I wouldn't even try to do it myself. I would miss deductions," Kanarek says.

Goodman says the best way to find a tax preparer is to ask freelancers you trust to recommend one. You want to make sure it's someone who's had experience preparing tax forms for freelancers. If you don't know others working freelance, you can find them on websites such as FreelancersUnion.org.

Doing what you love seems to come with a hefty health insurance price tag. As a freelancer, you have to pay your entire health insurance premium. So when you shop for health insurance, you may need to look for a plan with a high deductible to save money, Goodman says.

She recommends hooking up with an insurance broker who works with multiple insurance carriers to find the best plan. "They can help you pick out something that's more catered to your needs," she says.

You also should look into creating a health savings account, or a savings account not taxed at the time of deposit. An HSA rolls over at the end of the year, so you won't run the risk of losing your money, Goodman says.

Tax deductions help mitigate the cost of health insurance. In September, President Barack Obama signed the Small Business Jobs Act, which allows freelancers and small business owners to deduct the cost of their health insurance before computing their self-employment taxes.

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