In some ways going self-employed can be quite simple to achieve. Indeed, the barriers to self-employment have been lowered considerably thanks to tech and a general ‘entrepreneurial shift’ for smaller businesses and one person operations starting out.
There again, there are various key steps to take to ensure the starting and maintaining of a well-organized self-employed situation whether you are a freelancer, contractor or business owner employing others. If in the latter category, you’ll soon need to use and understand important tax paperwork such as W-2 forms to record employee wages and more.
So, here are four keys you need to remember as you go self-employed:
1. Status
What type of business or self-employed status is right for you? This is an important step to get right as it can affect how you’re taxed and handled by the IRS (Internal Revenue Service).
For example, you could simply register as self-employed or become an LLC (Limited Liability Company). The latter demands more rigorous record keeping and tax accounting but may be better if you’re a fully-fledged business perhaps employing others – or expect to be at some stage – as opposed to being a one person operation such as a freelancer or contractor.
2. Engage expert help
While you will find yourself wearing several different hats as a business owner you will need expert help in certain areas.
An accountant or tax advisor is one obvious example and they can help you in deciding your ‘status’ as discussed above. They’ll also help when it’s time to complete your tax return and provide relevant records so the IRS can calculate your tax liability, and – if you’d like them to – consult with you throughout the year to ensure you understand how your business is performing financially.
For basic freelancing, full time use of an accountant may not matter so much; help at year end for tax filing may be all you require.
You may need other expert help depending your activities: for example, a lawyer to help with specific legal matters may be required at certain times and other expertise might comes from specialist consultants.
3. Accurate and efficient record keeping
From the start, ensure you set up an easy to administer and reliable record keeping system so you have access to relevant paperwork and information quickly.
There’s nothing worse than a time-consuming paper chase when you need information – especially when tax reporting deadlines are looming and you’ve lost important receipts to back up your expenses claim.
It’s a wise move to invest in some accounting software and learn how to use it.
4. File to the IRS on time
Missing tax filing and payment deadlines is an expensive mistake as fines are levied and the IRS may consider doing an audit on you if you’re regularly missing deadlines.
Your financial expert can again help here but understand when you should file your tax return and when payments are due. They fall four times a year so ensure you’re ready for them with funds on hand to pay in good time with paperwork completed and ready to submit.
More for your checklist
Thinking about how to employ people or engage freelancers and contractors is important information – although you may not need to know this right away so you can afford to wait until the time is right before ‘swotting up’ on these aspects. There’s a lot to be said for acquiring knowledge and dealing with matters on a ‘need to know’ basis to start with.
