Freelance Work

[Andy Patton]

I have been doing some freelance contract work lately, (creating site maps/renderings/digital models), and I am now wondering if I need to set myself up as a legitimate business, probably an LLC.  Im not looking to start a design business as this is just intended to be a supplement to my income while I try to land a full time LA position, but I am curious if I need to have a business set up for legal and tax issues.  I know people out there have gone through the same type of situation and I am interested to know how you did it, and what you had to do.  For the record I am in Denver, CO.  Thanks!

[nca]

Welcome to the club Andy.

 

There are at least a few of us who are piecing several jobs/projects together.

 

With regard to your question I think it’s important to take into consideration how you get paid. If you’re hourly and filled out a W-4 with the employer, you’re an employee of the company and will have tax withheld. Their liability should cover you, though you probably wont be eligible for full time benefits like health insurance..in which case you should ask for more hourly.

 

Otherwise, if you’re an ‘independent contractor’ you should get paid perhaps double your full time hourly rate. If you are usually employed full time at $20/hour as a regular employee you should ask for $40-60 minimum as an independent contractor because you will be responsible for your own tax liability at the end of the year which could be alot, let alone your own overhead such as paper, print cartidges, electricity, phone, gas, and software to name a few. You will also likely be responsible for your own health insurance, etc, so forget about it..lol.

 

I have my own business, but I work as a regular part time hourly employee for two firms. I would bet most firms would be more interested in having you as an hourly part timer.

[John M. Slinski]

I would do it. I set up an LLC last year and an LLC protects your personal finances. It keeps your personal income separate from your business. I did it for piece of mind. Plus it allows you to write things off during tax time. You can generate business expenses: travel, seminars, computer suppplies, travel, a portion of your dwelling that is devoted to your “office”, etc.

I don’t know the particulars of your state but I set mine up in NJ and it roughly costs around $200-300. Ususually you can set it up on-line and the website will have specific instructions about how to set up your business. Before you do the requirements for your state you’ll have to get a federal tax ID # from the IRS. You can request that on-line as well.

My LLC is now defunct and if you close your LLC you’ll have to pay for that as well.

Good luck.

[Andy Patton]

Thanks for the welcome Nick,

 

I have tried to talk a couple firms into hiring me as a part time employee which would be ideal, however they just aren’t bringing in enough work.  So I become their overflow work safety net.  Which is fine, just not very consistent.  According to your numbers I should also probably raise my fee a little, ha.  

 

I guess looking at it now, setting up an LLC is probably the best idea for my current situation.  Another question on top of that would be if the LLC needs to be set up before filling out tax forms from a contractor like a W9.  I feel pretty lost when it comes to businesses and taxes. 

[nca]

They should be able to hire you as part time/temp and use you only when they need you. Thats what I do and usually I’m needed quite a bit. Yes, if you’re paying your own taxes and expenses you should have a rate probably well over $50/hour. That firm will bill you out as a regular employee at $65-85/hour most likely if not more.

 

BTW, if you have less than $8000 (correct me if I’m wrong anyone) in itemized expenses you will take the standard deduction at the end of the year. Use software like turbotax and it will walk you through all of your income and expenses. Start saving to pay your taxes!

[Andrew Garulay, RLA]

A Sole Proprietor business is the easiest and cheapest to set up, for reporting taxes, and for dismantling. Unless you have a lot of assetts, I don’t know why you would want to complicate it. … if you use your own name, all you have to do is report your income unless you are collecting sales or service tax (we don’t have service tax in my state). You’ll need to file a Profit & Loss from small business form with your Form A and Self Employment Tax, as well as the various schedules for deductions. Get Turbotax or something similar to help you out. … if it grows,  you’ll want to get an accountant and look into an LLC or incorporating.

[Andy Patton]

Oh okay, that seems to make more sense for the amount of work I am bringing in right now.  I will need to look into the various ways I will be taxed.  Thank you very much for the help, it definitely takes some stress off of wading through this stuff alone.

[Jason T. Radice]

If you work as a contractor or consultant, be prepared to receive 1099’s in the mail come January. The 1099 is the kind of like a W2 in which the contractee files with the gubmint that they paid you, the contractor, that year. You then use the 1099 to report your income, like a W2. The tax software will tell you where to put this info, usually in the “other income” section with bank interest or capital gains. Be prepared to lose half the money you earned on your 1099 from fed and state taxes.

Its really hard to know if you are doing everything right, and when to start an LLC, get insurance and the like, and the government (depending on the state) doesn’t make it cheap or easy. You might look into something like quickbooks if you start dealing with a few firms to keep the invoices straight and your tax liability out in the open.

Good luck!

[Tanya Olson]

I absolutely agree. Setting up an LLC runs more like $800 – $1,000 and thats without the CPA – just legal fees – speaking from a place of having done it less than a month ago.

Sole proprietor you just have to register with the state and file state taxes, the federal taxes can be paid once a year on your regular tax form or you can set up quarterly payments. Since we had one spouse already paying federal taxes we just made sure that our total bill was covered and never had to pay extra. I had a SP for 2 years previous to this and it worked very well for the amount of work I was bringing in.

We just transitioned to our own LA firm, so we needed legal separation from our personal assets for liability reasons.

Best of luck!

[Author]

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