Start an Independent Contractor Business
When you are working as an independent contractor, you are completely relying on your talent, hard work and networking skills. You can work for other people as an independent contractor or build a business entity, such as a limited liability company or sole proprietorship. Both options have their own shares of pros as well as cons.
When you are working for yourself, you are free to choose your clients. If you set up a business entity, you can deduct valid business outlays to reduce your tax bill. You can become a sole proprietor or work as a limited liability company. Regardless of your choice, building a business entity is worth the trouble and time especially when you’re earning well. Here are some tips to help you get started.
Choose the Type of Business You Want to Establish
There are different legal types of business. For instance, you can choose to build a limited liability company if you’re a freelancer or independent contractor. Incorporating is a good idea if you’re offering products and want to hire employees. You may build a partnership entity if you’re dealing with a professional practice such as law or dentistry. If you’re an independent contractor offering a service, you can register as a single-member LLC. If you don’t have any idea about which business type suits you, you can talk to a lawyer to help you make a good decision. He can explain the types of business you can run and give you advice on the right one for you.
Tax ID Number
Applying for an Employer ID Number or tax ID number is important. Even if you don’t want to hire employees, you should still apply for this number as it establishes you as a legal business entity. The tax ID number is also unique to your business.
Don’t buy business cards right away. You should choose a name for your business and register it. Make sure no other business is using the name you’ve chosen. You can also consider trademarking your business name. If the name of your business is different from your company’s name, you may be required to file a fictitious name statement.
Business Checking Account and Record Keeping System
By getting a checking account for your business, you can establish it as a separate business unit. This will make it clear to other people and the IRS that you and your company are separate entities. You also need to have a record keeping system. It can help you get the information needed to support your use of valid business deductions. This way, you can keep an eye on your business outlays as well as income. This will help you know the current state of your business and you can deduct your business outlays from your income to reduce your tax bill.