Starting a Freelance Business

Welcome to the freelance world. This new venture could well be exciting for you. It can also be confusing. Being in business is something that not only takes time to learn but takes time to keep up. I’m providing this outline to get you started. Please read as many articles as you can on this website so you can become more familiar with being a freelancer. The best of luck to you in this new time of your life!

  1. Name of business:
    1. Do you want to run your business under your own name? If so, you should have a checking account for your business under your own name.
    2. If your business will be run under a business name other than your own name:
      1. Check with your county clerk to see if you have to register as a business and see if anyone one else is using this name.
      2. Get an employer identification number from the IRS. https://www.irs.gov/pub/irs-pdf/fss4.pdf .
      3. You will use this ein (employer identification number) to open a business checking account. You cannot use your personal checking account for checks received in your business name if the business name is different from your personal name.
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  3. Type of business: You are a sole proprietor if you conduct business under your own name. You can also be an LLC (limited liability company) or a corporation (C corporation or S corporation). For most of you, being a sole proprietor is the most simple and most efficient form to be. Many people get talked into being a corporation when it doesn’t serve them to be incorporated. Please do your research as to why you would want to incorporate before you do it. Being incorporated may be useful to you at some point but if you incorporate before it’s useful, you will start out with cumbersome, expensive and unnecessary recordkeeping and tax filings. Please see “Should I Incorporate” on this website: http://www.freelancetaxation.com/should-i-incorporate. If you’re considering anything but a sole proprietorship, you should speak to both an accountant and an attorney about what each choice means and its pros and cons.
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  5. Recordkeeping:
    1. You must keep track of all your income and expenses. I would suggest you use a spreadsheet or software like QuickBooks as you make money and as you spend it.
    2. Please see “Tracking Freelance Income and Expenses” on this website about what you need to do this: http://www.freelancetaxation.com/tracking-freelance-income-and-expenses
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  7. Income and expenses:
    1. Without keeping track of every dollar you receive as a freelancer, you might well have to depend on the 1099 you hopefully will receive but which may or may not be accurate. Without records, you will have little idea if it is accurate. On the other hand, you might not receive a 1099 but you are still responsible for the income you received. Also you may be have reimbursed for expenses. Those usually are included on your 1099. You have to keep track of what they are in order to take the proper deductions. Please see “How to Think About Your Freelance Income” on this website: http://www.freelancetaxation.com/income-tracking
    2. Expenses: There are lists of possible expenses for different freelancers on this website (eg for artists, for writers, and a generic list for freelancers). Just because there is a category that you have that’s on the applicable list does not mean you can deduct it. Freelancers who go into an office may have hardly any expenses while other freelancers who actually run their own business usually have a number of expenses.
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  9. Taxes:
    1. You will file a Schedule C, Profit or Loss from Business as part of your 1040.
      1. Here is the 2016 Schedule C: https://www.irs.gov/pub/irs-pdf/f1040sc.pdf. You will put in your income and subtract out your expenses on this form.
      2. Schedule C is integrated into your 1040 along with other forms including Schedule SE, Self-Employment Tax  https://www.irs.gov/pub/irs-pdf/f1040sse.pdf. Self-employment tax is to freelancers what FICA and Medicare taxes are to W-2 workers.
    2. State and local taxes: Normally your state will use the same number for net income for your business as used on the 1040 from the figure you arrived at on the Schedule C.
      1. Some localities like New York City have a city income tax.
      2. There may also be other local taxes like the Metropolitan Commuter Transportation Mobility Tax and the NYC Unincorporated Business Tax in NYC.
    3. W-2 workers have taxes taken from their paychecks. Freelancers pay estimated taxes. These generally are paid for federal, state and local taxes four times during the year in which the money is earned. These taxes are not voluntary. You get a credit on your taxes for the money you’ve paid in. If not paid you may be penalized. Please see “Estimated Taxes for Freelancers” on this website: http://www.freelancetaxation.com/estimated-taxes-for-freelancers
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  11. Time: You will want to spend most, if not all, of your time doing what got you into your business.  Perhaps it’s making art or writing or photographing. It is very important, however, that you understand that dedicating a portion of every day or week to the administrative side is critical to having a successful business. Reason: keeping up with the business side of your business will allow you to keep doing the part of the business that you like more and which got you into it in the first place.I wish you the best in your new venture