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Photo By: Simon Abrams
Disclaimer: I’m not an authority on the legal/tax specifics of starting and running a business, obviously. Below is an overview of my own experience starting my freelance business. Any questions or concerns would be better addressed toward a professional who specializes in these matters. However, you can read through my overview and gain a general understanding of some of the areas of consideration that you may encounter in starting your own freelance business. Have fun.
My own educational background in Computer Science affords me the opportunity to pursue alternative and supplementary income routes; one of the most popular being freelance software development and technical consultancy. Freelance development would provide potential opportunities to explore other domains outside those of my traditional employment (Let’s face it, PHP development isn’t in vogue in a lot of circles). However, as I learned and completely expected, this route is very much different than your traditional W2 employment.
So in Fall 2017, I jumped into my role as a part-time freelance software developer. I documented my approach and categorized them into three primary phases:
First, I decided that it would be worthwhile to form an actual legal business entity for my services. I debated between two entities.
The IRS would treat either entity similarly since a single-member LLC is taxed the same as a sole proprietorship, however designating my business as an LLC would protect my personal assets from any outstanding debt collection incurred by the business by adding a layer of legal liability protection.
So after a bit of research, I started the aptly named and self-titled Blake Adams LLC an LLC incorporated in the state of Mississippi. This was done, easily enough, online. I decided against incorporating in other states such as Delaware and Nevada after weighing out some of the advantages and disadvantages.
Second, now that I had a legal business entity, I looked into the tax obligations that I would likely encounter while conducting business as a single member LLC. Beginning with applying for a federal EIN.
Federal Tax Obligations:
State Tax Obligations (Mississippi):
Quarterly Estimated Taxes Schedule
Between State (5%) and Federal (24%) and self-employment taxes (15.3%), I was looking at around 45% of my revenue going toward taxes. Whoof…
To offset my tax burden, I could potentially deduct some of my business “expenses” including but not limited to:
So how would this process look?
Now that I have my legal business entity created and my tax obligation estimated, it is time to determine the best option for banking with my corporation. It is heavily recommended to avoid mixing your personal and business transactions in the same accounts; therefore I began looking for a business checking account solution; beginning with local/regional banks and then continuing to online options.
Some of the main points that I looked for included:
Unfortunately most local brick and mortar banks were not competitive in comparison to their online competitors and I eventually settled on the Capital One’s Spark Business Checking Account. I determined that a business credit card wouldn’t be necessary for my services since I have no plans of incurring debt or credit in the execution of my services.
Next I needed to review many of the valid payment methods that I could accept:
Many of the more convenient methods have associated percentage fees (particularly when card transactions are used). The geographical situation would determine which method would be best. With local/regional clients, the convenience of checks couldn’t be overstated enough.
For the most part, I felt like I had a good understanding of the general business structure and operation that would need to be executed behind the scene for any success in freelancing, however the hardest part laid ahead.
Actually obtaining business.
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