Freelancer's Guide #1: The Good, the Bad, and the Taxable Income

*UPDATE 2/14/10** Much of my previous information on freelancer taxes, business tax deductions, and estimated payments are quickly becoming outdated, or may no longer apply to many freelancers in the animation/vfx industry.  See this post for more information:  http://kylemohr.blogspot.com/2010/02/freelancers-guide-goodbye-1099.html


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Welcome to my first ongoing topic! I've only been freelancing in New York for a little over a year, but I've already been asked a few times about it by people considering it. Seeing that my knowledge of freelancing thus far has come only through the generosity of the friends I've met here, I decided it's time to spread the love and make a resource for anyone considering going freelance (or starting out freelancing) in NYC. Since it's such a huge topic, I'm gonna start out with what I would consider to be the first questions people have, and then continue on in later posts with specific topics.

Knowing how to be smart when freelancing is probably a skill only learned after years of experience, and part of the reason for that is because nobody really openly talks about it! The other reason is that I do think it takes experience to fully understand the complexities, and because of that, I can only offer you what a year's worth of experience can understand. So if you are reading this and think you know more than I do about freelancing, you may be right--so post comments to add your advice!

The Good
People go freelance for various reasons. Some don't want to be tied down to one studio, some like the flexibility of being able to take time off. Others, like me, freelance because that's about the best (and nearly the only) way to stay employed in New York. My perspective on freelancing comes as a newcomer to the industry, gaining experience and exploring this thing called commercial animation.

1. Experience
Probably the thing I like the most about freelancing in NYC is that it has truely shown me how various places function day-to-day. What the work environment is like, how production is managed, scheduling is made, how teams work together. I've come to realize that some people, even those who go to a big LA studio straight out of school may never get to see the industry in a broader scope, and only know what it's like to work in a large feature animation/vsfx house. I've freelanced at 4 studios so far, and every one of them has been very different from the last. Freelancing makes sure that you don't get stuck in a bad working environment, just because you don't know what a good working environment is like.

2. Networking
In NYC, the local industry is even smaller than the animation/vsfx industry as a whole. Meaning that once some of your friends start dropping your name as an available freelancer, your odds of getting a gig are fairly good (if you have patience). Studios will hire you for a gig, and if you don't screw it up, they will probably call you back when they need more manpower later. Of course you still need to have the skills shown on your reel to be hired, but networking is what will get you the initial email. You also need to not be a jerk. Seriously. Also, you have a great opportunity to meet a lot of people at every place you work--an opportunity to make friends, not just expand your business network.

3. Flexibility
It is nice to be able to say to yourself "I wanna go home at Christmas for a week", and be able to do that (providing you are not booked somewhere then). You can take some time off whenever you want to see the family, go on a trip, etc. In the fast paced world of advertising, these breaks allow you to build up your energy again to tackle the next round of stomach-churning client notes. If you'd rather work from home, you have even more flexibility, even so far as working late and sleeping in until 12pm. I have chosen not to do remote work thus far, because it takes a lot more self-discipline, and I would also rather be working with other people than on my own.

4. The Pay
Freelance pays well--if you ask for it. This is a double edged sword, and will also be explained further under "The Bad". But as far as the good, it is possible to make much more by freelancing than by getting a salary as staff. Freelancers in New York usually get paid by the day. This is a whole 'nother topic, and is best saved for a post of its own. Note: This does not mean you will be living in the lap of luxury...in fact, you probably won't.

5. Tax Deductions
Since freelancers are "self-employed", they are their own business. That means that there are plenty of tax deductions you can legally take if they come from expenses due to your career as a freelance artist (your business). Computer equipment, books, demo reel/portfolio materials, etc--if it's honestly related to your career, you can deduct it as a business expense. Save your receipts.

The Bad
1. Downtime
What some call flexibility, others call a lack of job security. If you freelance, there will be chunks of time when you actually would rather not be on break or "between gigs", because moths are slowly setting up home in your wallet. As the industry as a whole becomes more and more based on the "project-hire" plan, most everyone will probably see downtime more than once in their career. The ironic thing is, if you are smart, freelancing can teach you how to anticipate and prepare for that downtime, while other people who suddenly lose their job are freaking out because they haven't put together a demo reel in 2 years, and haven't saved up any money. So while downtime is in my opinion a bad thing, you may benefit from it in the long run (again, if you are smart).

2. Uncertainty
This is the broader picture behind the "downtime" info. The uncertainty of a freelancer's life goes beyond job security (this is probably the umbrella topic where everything under "Bad" can fit. When you are working gig to gig, for a couple months at a time, you really can't know where you're going to be 6 months down the road. You may not know if you can get home for Christmas until a month beforehand. I learned quickly that I could no longer plan my year, trips home, etc, because I had no idea where I'd be a few months down the road. While you may no longer feel you can plan those things, you also need to be able to plan for the short term. You need to save up your money so that when your current gig is up, you have some padding to pay your rent and bills while you find another job.

3. No Benefits
Health insurance is up to you and your pockets. Planning for the long-term is something that has recently become apparent to me, and while I am still learning this myself, I do know that it is very important. When you don't have a company 401k or other retirement plan, it up to you alone to be in charge of your retirement money. While you may make some good money in the present, it will do no good if you have not prepared for that time when the paychecks aren't coming in. Even though I am in no way close to retirement, this is the time when people like me have to be saving the money that is being earned.

4. The Pay, and your taxes
You don't get taxes deducted from your paychecks. This may seem small to you now, but when you are paying your quarterly estimated payments or filing your tax return, you'll realize how much better it would be to have that taken care of automatically. Estimated quarterly payments are made so you don't get hit with a fine at the end of the year for not paying taxes during the year. Amazing how that works isn't it. You will also need to either get an accountant, or figure out how to file your taxes as a business owner and personally. Turbo Tax has a home business version that helps you take deductions that you qualify for, but eventually the time will come when it is better to get an accountant to do it for you. You are smart if you open up a savings account at your bank, and save about 1/3 of each paycheck for New York and federal taxes. If you don't, you run the risk of not having that money when you need it.

Also, you will need to know what to tell studios when they ask what your "day rate" (amount of $ you charge per day) is, as that will be what you are paid for your hard work and sweat. This varies depending on your experience, and on how well you can negotiate. This will be discussed in its own post sometime.

5. The "Hold" System
The hold system is apparently something that was seemingly invented in New York to "hire" freelance artists. It goes like this--you get a call or email from Studio ABC in Manhattan. They've seen your reel and they like it, they say they are in need of an animator, and ask if you are available. If you are, they say "Great, we'd like to put you on hold for April through June".

On hold? What does that mean?? Am I employed or not? Technically no, if you are just on hold, you are not being paid, and not working. A hold is nothing more than a sort of verbal agreement that *if* a studio needs you to come in to work, you have told them you are available to do it, you are sort of "on call" for them. Do not confuse this with being "booked". If a studio gives you a start date and says you are booked from April 2nd through June 15th that means that they are obligated to let you work those dates, you are hired for those dates. This unfortunately is a grey area for some people, and another "Bad" part of freelancing--you may need to make sure that your employer knows the difference between being booked and "on hold". Yeah, I don't like the hold system either. But there are ways of it working in your favor, as will be better explained in a post dedicated to this topic alone.

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Phew, that's a lot of info, and a big summary in which I'm sure there are numerous holes (and is by no means complete). But I will expand upon these and other topics later. The industry in New York is healthy right now, and the more you know about what it's like to work here, the good and the bad, the better you can prepare yourself and make an educated decision on if it's right for you. I myself am very grateful for starting out my career freelancing, because it has helped me to make new friends quickly, given me experience on some fantastic projects, and taught me that every studio is different.

For more information and great advice on freelancing in New York City you should definitely pick up "Your Career in Animation: How to Survive and Thrive" by David B. Levy. Highly, highly recommended.

Also check out the Freelancer's Union. It is a great resource and advocacy group for freelancers that started in New York, and is now spreading to various cities across the country.