How Does a Freelancing Business Work?

1. You can start your own freelancing business in just a matter of weeks. In an uncertain economy, many companies prefer to cut costs by hiring freelancers and avoiding the costs associated with employees, such as health and workers' compensation insurance. Being a legally recognized freelancer will give you the edge over those who will need to depend on full-time employment within the traditional bounds of company-employee relations.
2. To make a freelance business legitimate, it is often advised to incorporate in the state where business is conducted. There are various methods of incorporation, including forming an LLC (limited liability corporation) or an S-corp. These are two of the easier methods of incorporation. Doing so will protect you in case your business gets sued or goes under. None of your personal assets will be effected. You can form an LLC by yourself--called "sole proprietorship"--or with a partner.
3. Incorporation can be done online or through an accountant (see Resources below). You'll have to choose a name that is not already used in your state, file some paperwork and pay a fee. Within a week or so, you will receive your official corporate seal and a unique federal identification number that you will need to include on invoices to clients and your tax returns. Though the freelance business itself will not have to pay taxes, you will have to list the business and pay taxes on it on your personal tax return.

Resources

• Forming an LLC

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