I’ve recently relocated and decided to freelance fulltime. I have no clue how to do this (taxes etc.) I’ve heard that filing my name as an LLC (Limited Liability Company) is a good idea, as it would protect me from lawsuits, but other than that, I’m not sure if it’s appropriate.
I strongly suggest you become an LLC or INC. LLC is for the most part, the same as incorporating. Only major difference is, LLC has what is called Statutory Assest Protection. If you rear-end someone on the road, they could come back to you in court, take your company and liquidate everything. It’s a loop hole.
However, unless you have enough assests to make it worth it, no worries. I started my company www.3-dimensional.com 5 years ago as a S-Corp. being incorporated allowed me to use “Inc.” offering a little more validity in the business world.
I would suggest you talk to your attorney and accountant. Together, they will decide what is best for you in your state. I have no regrets being incorporated.
Although, if design is your only service, you must protect yourself in other ways. Such as a contract tighter than a nun. Never do any work without a signed contract. Use it to snuff out the wrong doers.
Anyone worried about signing a contract is more worried about you going after them, then they are about wanting to get the job done.
Again, talk to your attorney and accountact - they will become your best friend.
Filing your taxes as an s-corp, llc or sole proprietor is almost exactly the same. The Schedule-C and Form 1120 are almost exactly the same. I recommend Turbotax or Taxcut deluxe. They both walk you through the process for about $30-$40 (also a deduction) without the high cost of an accountant. I wouldn’t get an accountant unless you have employees or are doing more than $150K/year. Depending on your state, s-corp and llc cost $1000-$1500. A good deduction, but may not be necessary, as maphappy wrote, not a lot of liability in freelancing. I could see liability with release to manufacturing data and if you are paying other vendors (you hire a model shop, the client stiffs you and the model shop sues you for their money).
I am in Virginia and filing for an LLC costs $100. You fill out a one page sheet, called your articles of business. It sounds very fancy but it is a very, very basic document.
You should contact your “State Corporation Commission” to file and also to make sure your idea for your company name is not taken.
Also, my county has a small business bureau to encourage small business growth and they love to sit down with you to help. They e-mail me a bit too much but it is a good resource.
I pay an accountant $135 to do my taxes which is really worth it to me. It saves time and translating the tax codes. He also knows stuff that only I could only possibly figure out after hours of reading. I can also e-mail questions throughout the year.
Basically, as I understood it if I ever get sued they could take my house, everything. This way they could only take my business assets. It creates a legal barrier between your personal assets and business assets.
I strongly disagree with iab on the accountant advice. Keep track of your expenses, and once a year take your records to a good accountant who will charge you $200 and write off more stuff for you than you ever imagined you could. He will also advise you on how to keep your records, and file all the forms for you. Saves much money and headache. Use contracts, and dont worry about incorperating untill you know you need to.
just don’t forget that deductions only go so far–it might sound silly, but if your income is small, having lots of expenses is more or less moot for that year. deductions can be carried forward, but don’t think you can spend, spend, spend unless you also earn, earn, earn.