Financial Glossary for Freelancers
Freelancing means you're the CEO, CFO, and entire accounting department rolled into one. Here's every financial term you need to know — explained in plain English so you can stop Googling and start getting paid.
22 terms organized by category
Pricing & Revenue
Hourly Rate vs Project Rate
Two fundamental pricing models — charging by the hour for your time, or charging a flat fee for a completed deliverable.
Value-Based Pricing
A pricing strategy where you charge based on the value your work creates for the client, not the hours it takes you to do it.
Retainer Agreement
A contract where a client pays you a recurring fee (usually monthly) to reserve a set amount of your time or deliverables on an ongoing basis.
Scope Creep
When a project gradually expands beyond the original agreement — more revisions, extra features, additional deliverables — without a corresponding increase in price or timeline.
Kill Fee / Cancellation Fee
A predetermined payment a client owes you if they cancel a project after work has begun, compensating you for time already invested and opportunity cost.
Tax & Deductions
1099 Threshold
The minimum amount of income ($600 for most freelance work) a client must pay you before they're required to file a 1099-NEC reporting that income to the IRS.
Estimated Tax Payments
Quarterly tax payments freelancers make directly to the IRS (and usually their state) to cover income tax and self-employment tax throughout the year, since no employer is withholding taxes from your paychecks.
QBI Deduction (Section 199A)
A tax deduction that lets eligible freelancers deduct up to 20% of their qualified business income from their taxable income, effectively reducing their tax rate.
Business Entity: Sole Prop vs LLC vs S-Corp
The three most common legal structures freelancers choose from — each offering different levels of liability protection, tax treatment, and administrative complexity.
S-Corp Election
A tax status you elect with the IRS (Form 2553) that lets you split your freelance income into salary and distributions, potentially saving thousands in self-employment taxes.
Reasonable Salary (S-Corp)
The minimum salary an S-Corp owner must pay themselves — enough to reflect fair market compensation for the work they do — before taking any tax-advantaged distributions.
Business Expense vs Personal Expense
A business expense is a cost that is ordinary and necessary for running your freelance business and can be deducted from your taxable income — a personal expense cannot.
Health Insurance Deduction (Self-Employed)
A tax deduction that lets self-employed freelancers deduct 100% of their health, dental, and vision insurance premiums from their taxable income — taken above the line, meaning it reduces your AGI.
Effective Tax Rate vs Marginal Tax Rate
Your marginal tax rate is the percentage you pay on your next dollar of income (your highest bracket); your effective tax rate is the overall percentage you actually pay on all your income combined.
Depreciation
A tax method that lets you spread the cost of expensive business assets (like computers, cameras, or furniture) over several years, deducting a portion of the cost each year instead of all at once.
Section 179
An IRS provision that lets you deduct the full purchase price of qualifying business equipment and software in the year you buy it, instead of depreciating it over several years.
Client Management & Contracts
Net 30 / Net 15 / Due on Receipt
Payment terms on an invoice that specify when a client must pay — Net 30 means within 30 days, Net 15 within 15 days, and Due on Receipt means immediately upon receiving the invoice.
Late Payment Fee
A penalty charge added to an overdue invoice — typically 1-2% per month — that incentivizes clients to pay on time and compensates you for the cost of waiting.
Invoice Factoring
Selling your unpaid invoices to a third-party company (a factor) at a discount in exchange for immediate cash — typically receiving 80-90% of the invoice value upfront.
Financial Planning
Emergency Fund (Freelancer)
A cash reserve specifically set aside to cover your living and business expenses during dry spells, client losses, or unexpected emergencies — typically 3 to 6 months of expenses for freelancers.
Profit Margin (Freelancer)
The percentage of your freelance revenue that remains as actual profit after subtracting all business expenses — the money you actually get to keep.
Revenue vs Income
Revenue is the total amount of money your freelance business brings in before any expenses; income (or net income) is what's left after subtracting all business costs — the money that's actually yours.
Other Business Type Glossaries
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