Here’s an Easy Way to Earn Hundreds of Dollars in Passive Income as a Freelancer

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Paying quarterly taxes is an expensive necessity. Find out how preparing for it ahead of time can bring in extra income. [[{“value”:”

Freelancing certainly comes with its share of perks. You can set your own hours, take as much vacation time as you want, and choose which clients you want to work with. But one of the most stressful parts of being a freelancer, at least in my mind, is not always knowing when the next project is going to hit your desk.

If you’re worried about a lull in your schedule that leads to a drop in your income, take a look at one simple tip to follow that can potentially bring in hundreds of dollars a year — with no effort required on your part.

Be proactive with your quarterly taxes

Since freelancers don’t have taxes taken out of a regular paycheck like full-time employees do, they need to make quarterly tax payments throughout the year (due in January, April, June, and September). That means these individuals need to make sure they leave enough money set aside to make a fairly large payment four times a year.

If you’re confident in your saving abilities, you may not worry too much about that since you always have enough money in your checking account to cover your tax bill. Many freelancers, however, choose to set that money aside in a separate savings account so they’re not tempted to dip into it throughout the year.

And it’s the latter choice that can earn you some major cash. If you place the money for your quarterly tax payments into a high-yield savings account, you can earn interest on that money until it comes time for you to make your tax payment. Right now, many savings accounts are offering interest rates close to 20-year highs, with some topping 5%. And since your tax bill is likely to be several thousand dollars, that means you have the opportunity to earn quite a bit just by leaving the money in one of these accounts.

Earn money by doing nothing

Exactly how much money you can earn on your tax payments will, of course, depend on how much money you put into savings. But let’s look at an average example.

According to ZipRecruiter, the average freelancer’s yearly salary is $99,230. By using a self-employment tax calculator online, we can find that the total taxes this individual will owe on their salary come out to $15,182 for the year. If you’re able to set aside that amount in a savings account at the beginning of the year, and you replace what you take out after each quarterly tax payment, that $15,182 will turn into $15,958.74 by year’s end. That’s a gain of almost $777 — and all you had to do was let the money grow for you with the magic of compound interest.

Let your money do the work for you

Not everyone’s personal finances will let them set aside $15,000 right away. That’s a huge amount of money for anyone to come up with (and there’s a reason tax payments are spread out throughout the year). But if you can set aside even some money in a high-yield savings account, you’ll be able to take a little pressure off yourself by letting your money grow on its own.

It’s also worth noting that this tip may not always work as well as it does right now. Rates on savings accounts can and do fluctuate, so it’s in your best interest to take advantage of the high rates we’re seeing today.

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