I’ve just moved to the US from the UK, where I did a bit of freelance work between finishing full time employment and relocating. I’ve just had work authorisation for the US approved, so am considering picking up on some of the freelance work where I left off before looking for full time employment over here.
I’ve been having a look on the US government website about setting up as self employed… but there’s a lot to read for somebody with no background understanding of how the US tax return system works!
I’ve done a quick search for previous threads on this, but they seem to be quite old, and I’m guessing things have moved on a bit!
So are there any freelancers out there in the US that can help with some tips on how to get started in terms of registering as self employed, what tax implications I’d need to consider, where’s best to find information, if there’s anybody worth talking to, and anything immediate that I need to consider to get set up before I get going?!
Depends where you are- US is not like the UK, there are differing regulations in each state. Many are similar, some are not. IDSA might be a good starting point. Cheers
Hire a tax accountant to tell you what to do. They specialize in this sort of thing, and you won’t have to worry about misinterpreting the law.
Thanks for the quick replies, I’ll take a look in to tax accountants then , I don’t want to get on the wrong side of the law in my first year here!
I’m based in Washington State if anybody knows of anything state specific?
If you want to contact me offline at 262.389.9652 i am happy to talk. I did consulting for 4 years and learned a lot of what to do and not to do when it comes to what questions to ask even how to handle adding other consultants to your staff.
I was audited in my 1st year and they auditor actually thanked me for making his job so easy.
the legal aspect is just as important as the accounting aspect.
this book and the documents within is very valuable (use the docs as templates) and modify them to fit your needs.
a few pointers -
- do what you know what to do and hire professionals for the other tasks for me that was a year end accountant and lawyer
- set up a llc (it is really simple)
- Set up a separate back account under your llc so that you protect you can show your business assets are separate from your personal assets. this helps not only with accounting but from a legal standpoint
- understand what is deductible and what is not or what needs to be amortized over the years. i had 2 students who went out and spent 10,000 right before the end of the year thinking they would “write it off” and get the full 10,000 back when they filed their taxes - i.e in many states design work can be considered RD and is thus not taxed for service - but if you hand them say a physical prototype then that is taxable - unless you had someone else make the prototype and they charged you the tax. thus you can not be charged with double taxation
- look for small business grants when i started out Auto desk actually contacted me after i inquired about software and provided me a grant which was 3 software packages surface modeling / solid modeling / render package
- I can go on…
- I am free to mentor and do not charge for knowledge sharing.
- do not use pirated software! suck it up and make the investment into the software most companies dont care if you are using their software to learn… but the moment you start making money with it they will come after you… and trust me they know.
Get an EIN. Fast and easy on the federal website. Put your EIN on your invoices. Your clients will send you a W9 in March, but you should know those numbers anyway.
You need to make quarterly payments to the IRS (income and FICA [the full 15.6% for SS]). Forms on their website.
Most states also require quarterly payments (income only). Forms on their website.
Obviously those payments will depend on how much you make. You can adjust from quarter to quarter as needed. I always gave them a touch too much. Never got audited, but ymmv.
That is the bare minimum to get up and running.
You can setup an LLC, or you can save a few bucks, do nothing and go sole proprietor. The difference is as a sole proprietor your personal finances are open to litigation. As an LLC, your business and personal finances are separate in terms of liability. For a long time I worked as a sole proprietor as doing sketches and prototypes opened me to zero risk. My clients had engineering departments and they carried any risk. How risk-adverse you are is your choice and I have been told the annual paperwork for an LLC doesn’t have to be a pain in the ass as it was for me when I switched to being an LLC.
USE QUICK BOOKS!
or something like it to track your invoices / cost / salary etc. without good records you open your self up to tax problems. also if your office is your home you can expense a percentage of your rent/heating/electricity and so on. But… some states require that in order for a home office to be tax deductible is most be a closed room - i.e have a door and only be used for work. Some also require that you must have a client be onsite at some point. DR’s / Lawyers are the reason for this… look at one xray and then write of 30% of their house as office/////
Oh… also accept credit cards… apple square is perfect for this and sometimes for new clients and ease they would rather use a corporate card to pay vs taking the time to get you set up into their PO systems especially if it is a first time project which is under a certain amount. I still do this for some clients and it is nice because once i have completed the work i actually get paid within 24 hours of sending them their digital invoice…
Wow, fantastic, thanks for all the advice. I’ll take a proper look through all of this, and cwatkinson I might well give you a shout when I get my head round the basics, thanks for the offer.