Setting up your freelance marketing business properly can have massive financial and legal implications for you. We’ve put together this guide to help you quickly setup your back office infrastructure and get back to growing your business.
Step 1: Incorporate your business
While you can freelance without registering a business, we recommend forming a Limited Liability Company (LLC). LLCs limit your personal liability by moving debts and obligations to your company.
Most businesses, including 60% of the Fortune 500, choose to incorporate in Delaware. Delaware law is business friendly and most lawyers and accountants are familiar with it. To incorporate your Delaware LLC, we recommend Stripe Atlas. They take care of the entire process for $500 including setting you up with a bank account. Before you submit your Stripe Atlas application, we recommend conducting a name search to find an available legal name.
Alternatively, you could hire a lawyer to complete this process for you but costs will be higher.
Step 2: Register with your city and state
Many cities and states require businesses operating within them to register with the state or local government. Stripe Atlas will not take care of this for you. There are several third-party sites that can take care of this for you, including Legalinc.
Step 3: Setup bank accounts and credit cards
Before applying for any bank accounts or credit cards, you’ll need to wait until you receive your EIN number from Stripe Atlas. This can take 7-10 days. If you incorporated another way, you may be able to grab your EIN number online instead.
Assuming you decide to use Azlo as your business checking account, you should consider applying for a business credit card too. Credit cards defer your expenses for an extra month which brings them inline with your client’s payments. Just make sure to set up automatic payments from your checking account to avoid any late fees.
At Growth Collective, we use the Capital One Spark Cash because it offers 2% cash back on all purchases. For other projects, I've used Brex. Their credit card has excellent rewards, but it can be difficult to get approved.
By default, every purchase that you make for your business should go directly on your business credit card or debit card. Comb through your personal expenses and look for business-related subscriptions to migrate over. Consider creating a business profile on Uber and Lyft to use for any business-related trips.
Step 4: Track your expenses with Quickbooks
While startups are trying to disrupt this space, Quickbooks remains the go-to tool for managing your own books. It’s a familiar tool to accountants which will help you come tax season.
Connect your cards and accounts to Quickbooks to pull in any business transactions. Schedule a time each month to review and classify your expenses. This process will become easier over time as you setup automated rules.
Step 5: Review tax implications with your CPA
There are tax benefits to forming an LLC for your freelancing business. Since LLCs are pass-through entities, you may be able to deduct up to 20% of your pass-through income.
As an LLC, you can elect to have your company taxed as an S-Corp. This allows you to split your earnings between W-2 wages and K-1 distributions. On the distribution portion, you do not have to pay Social Security and Medicare taxes.
To ensure you maximize these deductions, we recommend hiring a CPA in your state of residence. It will cost you more than Turbotax, but the tax advantages are worth it.
Step 6: Begin paying yourself a reasonable salary
If you elect to be taxed as an S-Corp, you’ll need to start paying yourself a reasonable salary. Consult with your accountant before setting your salary as it will have tax implications.
Gusto is a payroll tool that can automate the payroll process for you. It’s important to use a tool like Gusto so that you properly withhold payroll taxes.
Step 7: Purchase liability insurance
Providing marketing services to a business carries inherent risk. All freelance marketers should invest in some type of professional liability insurance. Coverwallet is one of many comparison websites that can provide a quote immediately.
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