Do I need to make it official?
Deborah Sweeney of MyCorporation Business Services says that home-based businesses are less formal in a lot of ways and it’s not always necessary to form a corporation or LLC (limited liability company), but that a DBA (short for “doing business as”) is a must. She says that to set up the bank account you'll need to keep it separate, you’ll need a DBA, LLC or corporation paperwork.
Which one you choose depends largely on what type of business you have and your business needs. Sweeney likens a company to a person — it’s a separate (albeit artificial) individual with limited rights and privileges.
In a sole proprietorship or general partnership, any debt incurred by the owner(s) or shareholders could potentially affect the business expenses, as the creditor would be allowed to come after those funds, even if they’re in what the bank calls a business account.
Having an LLC or corporation also builds credibility with your customers, which is why Sweeney encourages people to do it.
The boogieman cometh: Freelancing and the IRS
The biggest issue freelancers face is quarterly taxes. If you don’t file and pay quarterly, the IRS will charge you fines and penalties. Plan to pay 15.3 percent of your total income for the quarter by the 15th of the next month (April, June, September and January). Sweeney advises setting up a separate savings account to squirrel away the cash as you go.
You should also carefully track your expenses and be able to verify every single expense you claim and every deposit into your checking account. The people who hire you only have to send you a 1099 (the freelance equivalent of the W-2) if they pay you over $600 in a given year. That doesn’t mean you don’t have to pay taxes on the income you get from clients who don’t pay that amount.
If you plan to DIY your taxes, make sure you don’t miss these key deductions.
- Business cards, online ads, website fees and other marketing materials
- Business insurance
- Interest paid on business credit cards or loans
- Legal and other professional services fees
- Rent or home office space
- Start-up deductions (for the first year)
- Health insurance
- Business supplies
- Business travel expenses
- Business meals
Just make sure you really track your deductions. Says Sweeney, “It is important to record what was spent, the date [and] to whom it was paid.”
But Sweeney doesn’t really recommend that you file yourself. “One could pay about $300 to get taxes done. In the process, however, an accountant could easily save the freelancer more than $300 in write-offs and deductions,” she notes.
When to get a professional involved
By now, we imagine most of you have already decided this is the only option and are now cringing at the cost of high-priced attorneys and accountants. But there are online legal providers like Sweeney’s company, MyCorporation.com, which can provide many of the same services in a much more cost-effective price range.
Sweeney also says you can leverage the expertise of the accountant or lawyer, then file the documents yourself with an online provider, which is more cost effective.
About Deborah Sweeney
As CEO of MyCorporation Business Services, Inc. (MyCorporation.com), Deborah Sweeney is an advocate for protecting personal and business assets for business owners and entrepreneurs. With her experience in the fields of corporate and intellectual property law, Sweeney has evolved from lawyer to business owner. She has extensive experience in the startup and entrepreneurial industry as she has been involved in the formation of hundreds of thousands of businesses for MyCorporation.com’s customers.
Sweeney received her JD and MBA degrees from Pepperdine University. She is active in the community and loves working with students and aspiring entrepreneurs. She serves on the Board of Regents at California Lutheran University and is a founding member of Partners of Pepperdine. She has served as an adjunct professor at the University of West Los Angeles and San Fernando School of Law in the areas of corporate and intellectual property law. Sweeney is also well-recognized for her written work online as a contributing writer with top business and entrepreneurial blogging sites. She is a regular contributor on Forbes, American Express, She Takes on the World, YFS Magazine, Empower Me! Magazine, and Business Insider among many others.
In her free time, Sweeney enjoys spending time with her husband and two sons. She believes in the importance of family and credits the entrepreneurial business model for giving her the flexibility to enjoy both a career and motherhood.
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