Whether you are a writer, an engineer, a consultant, or any number of other independent working positions, you are an independent contractor. This means you are self-employed. You should take the steps to set up a business entity. Here's why you should do that and the tasks you need to start your business.
Like any other endeavor, working for others has benefits and drawbacks. The benefits: you are truly independent. The drawbacks: no one is going to help you with taxes and legal issues. Learn more about the realities of being self-employed and the benefits of setting up a business entity.
The number of legal types is confusing. This list gives you an overview of each and directs you to more information about each type. If you are starting as an independent contractor or freelancer, consider forming a limited liability company. If you are making a product and planning on hiring employees, you might want to consider incorporating. If you are working in a professional practice - dentistry, law, accounting, for example - you might want to set up one of the partnership entities. If you are a solo contracor performing a service, you might want to start as a single-member LLC. Learn more about the legal types of businesses so you can talk to your attorney about which is best for you.
Even if you don't plan on having employees in your business, you should apply for a tax ID number (also known as an Employer ID Number). This number is a unique number for your business and it helps establish you as a business entity.
When you have selected a business name
, don't rush out and buy business cards and stationery yet. First, check to be sure no one else is using that name. Then, consider trademarking the name if it is unique. Finally, you may need to file a fictitious name (trade name, or d/b/a) statement if your business name is different from the name of your company. Learn more about these steps in registering your business name here.
Getting a business checking account will help establish that separate business entity, so it is clear to the IRS - and anyone else who cares - that you and your business are separate entities. Here are some considerations in setting up that checking account.
Capture the information you need to support your use of legitimate business deductions. Here is a simple system that will give you all the information for tax time.