Pay stubs are issued by employers every payday. This document typically outlines the amount of money you earned over a bi-weekly period, complete with your taxes and other deductions. If you’re a freelancer or independent contractor, you may need to create your own pay stub.
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How to Make a Self-Employed Pay Stub
Making a fake pay stub is simpler when you use a program, but you’ll still need to implement your gross pay, subtract your tax deductions, and state your net pay on the document yourself.
Gross Pay
Gross pay is the amount you earn each pay period. When you’re self-employed, you can give yourself a paycheck whenever you want, but it’s easier to be consistent for tax purposes. For example, if you were paid $120,000 over the year, your monthly gross pay would be $10,000.
Deductions
A deduction is anything you’ll automatically subtract from your income. Freelancers are subjected to a 15.3% Social Security and Medicare tax rate plus their income tax rate. It’s a good idea to subtract 25-30% of your income to ensure you’ll have enough for tax season.
Net Pay
Your net pay is what you actually earn after deductions. If you take 30% off of your $10,000 monthly paycheck, you’ll be left with $7,000. To discover precisely what you owe, take your tax bracket groups and add 15.3%, then subtract that percentage from your gross pay.
Once you have this information, you can insert these numbers into your fake pay stub.
Why Freelancers Should Make Their Own Pay Stubs
Creating your own pay stub is easy, but why would you need one in the first place? Below are five reasons why freelancers and self-employed workers should make their own paychecks.
Proof Of Income
The biggest reason why freelancers need pay stubs is for proof of income. When applying for a loan or a credit card, lenders will ask for proof that you’re generating a stable income. As long as you bring your bank statement, a paycheck can act as legitimate proof.
Easy Tax Filing Process
Tax season can be difficult for independent contractors, but you can simplify the process by using a pay stub generator. Instead of drafting an invoice, you can use a fake pay stub to show your clients what they owe you and what deductions you withheld.
As another positive, pay stubs can categorize business expenses that have to do with travel and meals, which are tax exempt. Having this information readily available will help your accountant.
Tidy Financial Records
Tax season will be a nightmare if you don’t keep your financial records tidy. Thankfully, pay stubs can give you a tidy paper trail of all the hours you spent working for clients. It’s a good idea to get into the habit of creating separate pay stubs for every project you’re paid for.
Setting Prices
Freelancers often price their services too low, making it difficult for new startups to stay in business. Independent contractors should consider their necessary costs, like rent, utilities, and lifestyle, when creating their billing system to ensure they get the highest return for their labor.
By creating a pay stub after each project, you can determine if your pricing strategy was correct at the time. If it wasn’t, you could adjust your prices until you’re not selling yourself short.
Self-Generated
You can put all of your financial information on a spreadsheet, or you can use inexpensive or free pay stub creation programs to manage your business instead. Keep in mind that you’ll need to transfer your invoices to desktop accounting software once your business starts to scale.
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