Calculating Your True Business Costs
The line items most freelancers leave off the spreadsheet — and what they actually cost.
When freelancers tell me they're "making good money but not feeling it," the cause is almost always the same: their definition of "business expense" is missing five or six categories. Software is on the list, an LLC fee is on the list. Healthcare, retirement, professional development, equipment depreciation, and insurance are not — even though those categories are exactly the things a salaried job covers and a freelance income has to cover out of the same pile of revenue.
Let's walk through a realistic year-of-expenses for a US-based solo freelancer earning $100,000 net so the numbers feel real. Adjust to your situation, but use this as a starting checklist before plugging the total into the rate calculator.
Software and tools
Almost everyone catches this category. Email and calendar (Google Workspace at $14.40/month = $173/year), accounting (QuickBooks Self-Employed or Wave or a CPA-friendly equivalent at $20-50/month = $300-600/year), invoicing if not bundled, password manager ($36-72/year), domain and SSL ($20/year), file storage ($120/year), the design or dev tools your craft requires (Figma, Adobe Creative Cloud at $660/year, JetBrains, GitHub Pro, an LLM subscription at $240/year). For a working freelancer, expect $1,500 to $3,000 a year just here, and most of it is monthly so it doesn't feel large.
Healthcare
This is the line item most freelancers underestimate by the largest dollar amount. A healthy 38-year-old buying an unsubsidized Silver plan on a state ACA marketplace in 2026 is paying roughly $480 to $750/month depending on state — call it $7,000 to $9,000 a year. Add a $400/month dental and vision rider and you're at $9,500 to $12,000. If you have a spouse and kids on the plan, double that floor. ACA subsidies kick in below certain income thresholds, but full-time freelancers earning $80,000+ usually phase out of the bigger ones.
An HSA-eligible high-deductible plan can cut the monthly premium by 20-30 percent in exchange for a higher deductible — a reasonable trade for healthy freelancers under 45 with savings to absorb the deductible. Above 45 or with chronic conditions, the math usually flips.
Retirement
A salaried employee with a 401(k) match gets the match free; a freelancer has to fund the equivalent themselves. The two main retirement vehicles for solo freelancers are the SEP-IRA (simpler, allows contributions up to 25 percent of net self-employment earnings, capped at $69,000 for 2024) and the Solo 401(k) (more complex, slightly higher contribution limits, allows Roth contributions). Either way, if your goal is to replicate a "good employer 401(k) match," set aside roughly 6 to 10 percent of gross revenue for retirement — which is $6,000 to $10,000 a year for a $100,000 freelancer who wants to retire someday.
Equipment and depreciation
Computers, monitors, desks, chairs, microphones, cameras — the tools wear out and need replacement on roughly a 4-year cycle. The simplest way to think about this is total replacement cost divided by years. A $3,500 laptop, $700 monitor, $400 chair, $500 desk, $200 in microphones and accessories = $5,300 every 4 years, or about $1,300 a year amortized. The IRS lets you deduct these as Section 179 in the year purchased; the cash-flow hit is real even if the tax treatment is favorable.
Insurance beyond health
Many freelancers should carry professional liability / errors-and-omissions insurance ($400 to $1,200 a year for solo freelancers depending on industry), and some clients explicitly require it before they'll sign a contract. Add general liability ($300 to $600 a year) and a cyber-liability rider if you handle client data ($300 to $700 a year). Disability insurance — the policy that pays you if you can't work for medical reasons — runs roughly $1,500 to $4,000 a year for a 35-to-45-year-old freelancer with a 60-percent income-replacement policy, and is the single most overlooked line item. Term life insurance, if you have dependents, is comparatively cheap at $200 to $500 a year for a healthy 35-year-old's $1M policy.
Professional development
Skill upkeep is the difference between a freelancer who commands top-of-band rates and one who slides down market. Books, courses, conferences (one a year is enough; expect $1,500-3,500 in registration plus travel), a coach or mastermind for the business side, professional association dues, certification fees. Budget $1,500 to $4,000 a year. This is the line that gets cut first when revenue dips and the line that quietly determines next year's rates.
Home office and utilities
If you work from a dedicated space at home, the home-office deduction recovers some of this on taxes — but the cash bill is the same. Expect roughly $600 to $1,500 a year of pro-rated rent or mortgage interest, plus a portion of utilities and internet. The simplified IRS home-office method ($5/sq ft up to 300 sq ft) is fine for most filers. If you rent a coworking desk instead, that's $200 to $600 a month all-in.
Banking, payment processing, legal, and accounting
A business checking account is usually free; payment processing is not. Stripe and PayPal each take roughly 2.9 percent + $0.30 per transaction; on $100,000 of payments that's $2,900-3,200 a year leaking out before you ever see it. Add a CPA or tax preparer ($400 to $1,500 once a year for a Schedule C return; more if you elect S-corp), an attorney for contract templates and the occasional review ($500-1,500 the first year, less in subsequent years), and any state LLC or business-license fees (California's $800 minimum franchise tax for LLCs and S-corps is the most famous; many states are cheaper).
Self-employment tax
Already covered in detail in the self-employment tax guide, but you must include it in your business-expense bucket when running the rate calculator. For a $100,000 net freelancer, that's roughly $14,000 of SE tax alone before federal income tax. The calculator's "annual business expenses" field is where this goes.
Adding it all up
A realistic single-person freelance overhead, US-based, healthy, no dependents, working from home: $25,000 to $35,000 a year before SE tax. Add SE tax and the total is $40,000 to $50,000. That number — your true cost-of-doing-business — is what your rate has to clear before any of it counts as personal income. Drop it into the BillMyRate calculator's expenses field along with your target take-home, and the floor it returns will probably be 30 to 50 percent higher than what most freelancers naively quote.