It's no longer a secret that the freelance career is a viable -- even profitable -- trajectory for many a writers. The fertile field is due to the volume of work available, a result of the fact that so very much of life's business is conducted via writing. Another boon for the business is the variety of potential specialties, ranging from freelance grant writers such as myself to content writers to eBook producers. This variety almost guarantees that any writer can find a suitable niche.
However, the influx of freelance writers also means that there is a great deal of competition. One way that a writer can differentiate his services from the masses of newbies is by conducting his freelance endeavors within the limitations and protections of a bona fide business. In addition, working within the confines of a business gives the writer additional systems and practices that will work in his favor. This may come into play, for example, at tax time, or if the writer was ever sued. Lastly, conducting oneself as a business instead of an artiste will help to establish long term employment security by bringing in more clients, keeping existing clients happy and creating a paper trail that labels you as "employed" to potential creditors, banks and funders.
Here are the steps to go through to establish your freelance writing (blogging, marketing, journalism, etc) as a business.
Procure an EIN
The IRS website will assign an EIN to you through this process. This will become the tax-identity number of your business, separate from your own personal social security number. However, be sure to protect it just like an SS number. Keep it private and if you do begin using it to establish business credit, be sure to monitor your credit score just like you would with your own SS.
Form an LLC
(. . .or a similar corporation/organization as recommended by your attorney.) With your EIN in hand, you can now establish your business through your state agency. My freelance writing business is established in Michigan, which has a wonderfully simple and affordable process for LLCs. This is part of the reason that I chose the LLC format for my freelance writing/communications business. However, the best type of company for writers will likely vary by state and seeking out professional advice specific to each situation and location is advisable.
Keep Meticulous Records
Once the writer begins to pick up clientele and garner a profit, you can bet that the tax man will want in. One of the very best ways to be prepared for this is to keep detailed and thorough records of every financial transaction associated with your freelance writing business. Of course, this leads to the obvious need for a separate business bank account, which is easily established using the small business' EIN and corporation or LLC paperwork.
Pay Yourself
Another aspect of keeping scrupulous financial records is the practice of paying oneself. Since the bank account is specifically for the business, it should not be used for personal expenses by the individual writer. That is, don't pay your mortgage out of your business bank account. Instead, a payment should be made to the individual. Some of my colleagues choose to pay themselves the same amount on a set schedule. Others simply choose to take a payment when needed, carefully keeping a balance in the business account for all the business expense needs.
Pay Your Taxes
As a freelancer, you're responsible for estimating your tax burden and paying it four times per year. Yup, that's right -- the process all those cube workers go through once a year is quadrupled for you! The best way to handle this in the early stages of a freelance career is with the help and handholding of a tax professional. Once you've got the process down, it's easy to reduce your CPA visits to once a year, and handle the quarterly payments yourself.
Get Business Insurance
Once you've established yourself as a freelancer, it's time to look into the potential risks that you may carry in your work. For example, indemnity insurance -- also called errors and omissions insurance -- could protect your finances in the case that a client sues you in civil court for negligence caused by something you composed. In addition, freelancers should look into liability insurance, business interruption insurance and (in the case of those working in a home office) expanded home insurance. Again, an insurance professional will be happy to walk you through your options.
These suggestions may seem like a lot at first glance to the new freelancer, but eventually the management of your business tends to become somewhat automated, and you can focus on your craft. But this initial establishment of systems and protections will help you to concentrate on your writing, knowing that your livelihood is safe and sound.
However, the influx of freelance writers also means that there is a great deal of competition. One way that a writer can differentiate his services from the masses of newbies is by conducting his freelance endeavors within the limitations and protections of a bona fide business. In addition, working within the confines of a business gives the writer additional systems and practices that will work in his favor. This may come into play, for example, at tax time, or if the writer was ever sued. Lastly, conducting oneself as a business instead of an artiste will help to establish long term employment security by bringing in more clients, keeping existing clients happy and creating a paper trail that labels you as "employed" to potential creditors, banks and funders.
Here are the steps to go through to establish your freelance writing (blogging, marketing, journalism, etc) as a business.
Procure an EIN
The IRS website will assign an EIN to you through this process. This will become the tax-identity number of your business, separate from your own personal social security number. However, be sure to protect it just like an SS number. Keep it private and if you do begin using it to establish business credit, be sure to monitor your credit score just like you would with your own SS.
Form an LLC
(. . .or a similar corporation/organization as recommended by your attorney.) With your EIN in hand, you can now establish your business through your state agency. My freelance writing business is established in Michigan, which has a wonderfully simple and affordable process for LLCs. This is part of the reason that I chose the LLC format for my freelance writing/communications business. However, the best type of company for writers will likely vary by state and seeking out professional advice specific to each situation and location is advisable.
Keep Meticulous Records
Once the writer begins to pick up clientele and garner a profit, you can bet that the tax man will want in. One of the very best ways to be prepared for this is to keep detailed and thorough records of every financial transaction associated with your freelance writing business. Of course, this leads to the obvious need for a separate business bank account, which is easily established using the small business' EIN and corporation or LLC paperwork.
Pay Yourself
Another aspect of keeping scrupulous financial records is the practice of paying oneself. Since the bank account is specifically for the business, it should not be used for personal expenses by the individual writer. That is, don't pay your mortgage out of your business bank account. Instead, a payment should be made to the individual. Some of my colleagues choose to pay themselves the same amount on a set schedule. Others simply choose to take a payment when needed, carefully keeping a balance in the business account for all the business expense needs.
Pay Your Taxes
As a freelancer, you're responsible for estimating your tax burden and paying it four times per year. Yup, that's right -- the process all those cube workers go through once a year is quadrupled for you! The best way to handle this in the early stages of a freelance career is with the help and handholding of a tax professional. Once you've got the process down, it's easy to reduce your CPA visits to once a year, and handle the quarterly payments yourself.
Get Business Insurance
Once you've established yourself as a freelancer, it's time to look into the potential risks that you may carry in your work. For example, indemnity insurance -- also called errors and omissions insurance -- could protect your finances in the case that a client sues you in civil court for negligence caused by something you composed. In addition, freelancers should look into liability insurance, business interruption insurance and (in the case of those working in a home office) expanded home insurance. Again, an insurance professional will be happy to walk you through your options.
These suggestions may seem like a lot at first glance to the new freelancer, but eventually the management of your business tends to become somewhat automated, and you can focus on your craft. But this initial establishment of systems and protections will help you to concentrate on your writing, knowing that your livelihood is safe and sound.
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