For people with a salaried job, budgeting their income and expenses is an easy task. A regular paycheck comes in for them every two weeks with taxes and benefits already taken out. For them it is easy to predict how much income will come in and what expenses will go out. But when you leave your full-time job for a freelance career, you also leave behind your stable paycheck. So how do you make sure that you have enough money to pay your rent? You need to learn how to create a budget. This article will explain to you basics of budgeting for your freelance business.

ADD UP YOUR EXPENSES

The first step in creating a budget is to add up your monthly expenses. If you are new at freelancing, then calculating your expenses first few months is going to be tough for you, but stick with it. Below, I have provided you a chart to fill out. For personal expenses listed, take a look back on last year's checks, bills, and credit card statements to see what you paid out last year. Figure out what average month was for each expense by writing down all twelve month's expenses and then dividing this number by 12.

For example:

January --------------- 112

February --------------- 84

March ----------------- 96

April ------------------ 130

May -------------------- 65

June ------------------- 98

July ------------------- 101

August ----------------- 59

September --------------- 75

October ----------------- 84

November ---------------- 96

December ---------------- 115

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TOTAL ------------------ 1115

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Divide Total by 12

92.92

$92.92 = Average Monthly Phone Bill

In above example, you would use $92.92 as your monthly phone expense on your budget.

MONTHLY EXPENSES ==========================================

Utilities (Telephone, Electric, Gas, etc.)

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Mortgage / Rent

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Cable

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Food

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Loans

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Transportation

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Entertainment

You probably aren't too concerned about being selected for an audit. Well, if you're a freelancer, avoiding an audit should always be on your mind as you file your taxes. Why? Because, no matter how straight you play it, freelancers get audited much more than salaried employees do. No - United States IRS doesn't have it in for independents, but numerous deductions that we file set us apart from other taxpayers.

So what can you do to keep IRS from noticing your return? Below find hints and suggestions to keep IRS away! These tips are particularly relevant to those in US, though other tax systems may be similar -- check with your accountant for details. And please note that information provided here should by no means be used as a guide to filing your taxes! These are merely suggested tips and hints. Be sure to seek professional advice in taxation, as in all business matters.

Six Steps to an Audit-Free Tax Return

1. Be Careful With Deductions

The IRS's favorite target is home office deduction. In order to qualify for a home office deduction, your office needs to be your "principal place of business" and used "regularly and exclusively" for business. In plain language, this means that your home office needs to be place where you spend most of your time and make majority of your income.

You'll also need to keep your personal life out of your home office. For example: a trick that I heard IRS sometimes uses is to ask taxpayer being audited "Do you use your computer for 50% personal and 50% business or 5% personal and 95% business?" If you answer 95% business, you have flunked test -- answer needs to be 100% business. This example demonstrates strict enforcement of guidelines for home office deduction. We'll talk about this more in Home Office Deductions for Freelancers.