Based on IRS classification, you’re a freelancer if you are:
- a sole proprietor, or
- an independent contractor, or
- a member of a guild or partnership, or
- have a side business
Establish your business identity
Types of businesses:
- S Corp
- sole proprietor
- simplest and cheapest choice for operating a business (register a DBA name in your city hall)
- not a legal entity
- income & loss are taxed on personal tax return
S Corp/ LLC:
- creates a separate and distinct legal entity
- taxed separately from personal tax return
- provides a little bit of legal protection
- more complicated and expensive
If you need help choosing the right entity based on your specific circumstances, talk to a CPA.
Picking a name
- work under your real name
- pick a brand name
Contracts and proposals
You need legally binding contract and a proposal
Using proposals to kick-off projects
In a proposal you describe what you’re going to do, what value does it provide to the client and how long it’s going to take.
There’s no one way to write a proposal. In general, err on the side of providing a lot of information and a lot of options to the client.
A proposal can be used:
- to get a new business from a client
- provide clarity and details about a project that has been pre-discussed
You can create a proposal from scratch or use an existing template (e.g. https://www.and.co/
has a template)
Writing legally binding contracts
After a proposal has been discussed and approved, you need a legally binding contract.
Key terms in a contract:
- payments terms
- what services do you provide, for what rate
- how much time clients have to pay you after project completion
- commonly net 30: payment expected within 30 days of completed service
- you can ask for a deposit to protect against non-payment
- scope of work
- detailed description of the work you’ll perform
- include timeline, milestones, reports, deliverables, and end products
- ownership rights
- who owns the right to use the end product of your work
- if you want to retain rights, ensure to include that in the contract
Key clauses you should include in a contract:
- kill or cancellation fee
- payment made in the event of project cancellation
- revisions (for certain kinds of works e.g. design)
- state exact number of revisions you’ll do for this project
- state additional fee for extra revisions
- billable expenses
- costs the client agrees to be billed for
- covers expenses that you incur while executing the project e.g. stock graphics or supplies
- need to be agreed upon in advance
- handling disputes
Pricing your work
Do research e.g. on Glassdoor.com
, freelance forums, social media groups and other freelance communities.
Beginner freelancers tend to under-price, so charge more.
Raising your rates
When you gain more experience with time, it’s normal to raise your rates, even to existing clients.
To get paid you send an invoice to your client.
Things to include in an invoice:
- who you’re invoicing
- what you’re invoicing for (what work was done)
- how much they owe
- deadline for sending payment (e.g. net 30)
- potential billable expenses
Options: check, cash, credit card or ACH direct deposit. Accepting credit cards requires help of merchant service like PayPal or Stripe.
You can also setup recurring payments (subscriptions).
Dealing with non-payments
To mitigate risk of non-payment you can require an upfront deposit e.g. half of the payment now, half of the payment after delivery.
You can include a late payment fee in the contract. Can be a fixed fee or percentage.
If payment is late, send a friendly email remainder.
To escalate, send a demand letter with friendly, but format, reminder that the client owes you money.
Next step is a lawyer.
Expenses and tax write offs
Common billable expense (that you can bill to your client):
- stock music, photos or video
- mileage and travel cost
Common tax write-offs:
- subscription fees or dues
- studio or office rent
You subtract write-offs from revenue and therefore pay less income tax.
Record keeping for write-offs
When keeping track of expenses manually (e.g. in a spreadsheet), you need to keep the following information:
- date of purchase
- amount of purchase
- proof of purchase (e.g. a copy of receipt)
- purpose of purchase
Tip: open a business bank account to better keep track of expenses related to your business and separate from personal expense.
Doing your taxes
You need to pay estimated taxes quarterly to avoid additional fee.
There’s software that helps to estimate taxes.
For federal taxes: form 1040-ES.
For state taxes: research the rules for your state on the web or ask a CPA
You can skip filing taxes if you make $400 or less (in 2018)