Starting a freelance business? Here are three legal considerations

Have you been thinking of breaking up with your 9-5 for good – and launching a new freelance business? If so, here are three legal considerations.

If you’re thinking of starting your own freelancing business and kissing your day job goodbye, you’re not alone. The number of freelancers in the United States is quickly rising.

By 2020, half of all workers are expected to be freelancers or part of the gig economy. So it’s a good time to launch your own freelance business. 

There are several legal hoops you need to jump through when you start a business, and a freelance business is no different.

Just because you’re working for yourself, maybe from your own home, doesn’t mean that you can avoid your legal responsibilities. Here are three things you need to consider when starting a freelance business. 

1) You may need to register your business

Depending on your industry and location, you might need to formally register your business. Most freelancers work as sole proprietors, but this puts all of the liability on you. And, if something goes wrong with your business and you’re faced with a lawsuit, you’ll be fully held accountable.

For most people this won’t be an issue. However, depending on your industry, you might want to form an LLC, which is the most common business entity for freelancers. 

Even if you decide not to form an LLC, you still need to register your business name. If you’re acting as a sole proprietor under your own name, you don’t need to take this step. But, if you’re going to run your business under a name other than your own, you need a DBA or a Doing Business As form. ReadInc File’s blog article about DBAfor more information about this process. 

2) You need to understand your tax liability

Paying taxes as a freelancer are completely different to the taxes you’re used to paying through your employer. As an employee, you probably didn’t look that closely at the taxes you paid while working at an organisation. Businesses taxes include federal income tax, state income tax, medicare, social security, workers compensation, and federal unemployment. 

As you’ll now be both the employee and employer, you’ll need to pay what’s known as a ‘self employment tax’. In short, you’ll need to cover a portion of those business taxes you weren’t personally responsible for while you were working a traditional job.

Many freelancers are surprised to see their tax obligation go up, and that they might need to pay quarterly taxes. The best way to figure out your own tax obligation is to talk to a tax professional. 

3) Make contracts

Finally, you’ll also need to get comfortable with making and reviewing your own contracts. Don’t worry – you don’t need to be an attorney to understand the basics of a contract. But you do need their protection, for you and your business. In a perfect world, all clients would respect your payment terms. In the real world, not so much. 

When making contracts, you want to spell everything out as clearly as possible. Document how much will be due, when it’s due, how the client will need to pay, and the entire scope of the project. It can be as simple or as complex as you want, and you can find many freelancer contractsonline to use as a starting point. 

Ready to start your own freelance business?

Running your own business is highly rewarding. You’re your own boss, you don’t have to work at an office, and you set your own hours. However, it’s not always straightforward. You need to ensure you’re setting things up legally and correctly if you want to avoid problems down the road. 

Make sure you take care of these three considerations above if you want to be successful. You’ll be launching your freelance business in no time! 

Photo by Hannah Olinger