Warning: I’m not a financial person or a legal person. I’m going to tell you right now that I have a finance guy (CFP) and a tax guy (CPA) and I recommend that you get one too. You won’t regret it. There are way too many decisions to make regarding your business and they’ll be able to walk you through everything, especially that CPA. Now on to the blog post…
I’m not Aubre Andrus, I’m Aubre Andrus LLC. I did this because my first client as a full-time freelancer — my former employer Express who hired me the day after my two weeks notice went up — required it. Before that I was just freelancing as Aubre Andrus. Establishing myself as an LLC does a few things from what I understand: it makes your business legit and protects you a bit.
What Does an LLC Do For Me?
By making your business official, you can open a business checking account and get a Federal Tax ID number or an EIN. That means all of your contracts will have this number on it instead of your social security number. And you’ll be signing a lot of contracts with a lot of random clients, so this is a smart move for you to make. The business checking account makes it easier for you to claim expenses and keep track of your income. If you want to attend a writing conference, you could use your business account to pay for the plane tickets, meals, and more. Also, depending on how you organize your quarterly taxes situation, it will be easier to transfer money to your personal checking account and give yourself a “paycheck” every week, month, or quarter.
Also, the LLC means that all the work you do is done under your business — not yourself. So, for example, if someone got hurt based off the craft directions I wrote in a kids activity book, they would try to sue me for all I’m worth. But it could only be for what my business is worth. They couldn’t take my house, just my yearly business income. And that’s as far as my non-legal legal advice goes, my friends.
Paying Taxes 4 Times Per Year
You can ask your CPA for recommendations, but mine files my business’s taxes as an S-Corp. That means that I’m an employer and an employee of my business of one. So I grant myself a reasonable salary each year and the rest of the income I make is business income that won’t be penalized with personal income tax (as long as I can justify a lot of it as business expenses). CPAs can also help you with quarterly taxes or point you in the direction of a company who specializes in “payroll” like mine did.
It costs about $100 per quarter for someone else to prepare and take liability for your quarterly taxes. These small business “payroll” specialists often have special online systems that withdraw a certain amount of money from your business account each quarter. They then keep your quarterly taxes from that sum and cut you a paycheck with the rest — your “salary.” So you actually have a paper trail of a quarterly steady check, which can be really good if you’re looking to get a loan on a house. You can also do this monthly but it would cost more because of the higher frequency of paperwork. My LLC has been established in three different states over the past two years so I don’t have a ton of experience with this stuff. Quarterly taxes are a good thing though. Would you rather get slapped with a $20,000 tax bill next April or pay it off in four parts over the course of the year? I thought so.
Don’t Forget to Save
I assume that about 50 percent of my income is going toward taxes and retirement. Realistically, taxes will probably only cost about 30 percent. But if I over save (which is never a bad thing!), I can give myself a “tax return” and decide if I want to plop even more into retirement or hang onto that money. Your CPA and CFP can help you decide how much you should give yourself as a salary each year and how much you should put in retirement. Your first year will be hard, but after that, they can make guesstimates based on your income from the previous year.
This part of freelancing sucks and is no fun to deal with. Opening an LLC can cost as much as $500 depending on your state. And CPAs can cost hundreds of dollars each year because they’re filing some sort of combination of state, federal, personal, and business taxes multiple times per year. But these expenses will save you time and money in the long run. Overall, I have a team of three people helping me get through this mess of taxes and I would not be able to do it without them!
Aubre Andrus is a freelance writer in Chicago who specializes in copywriting, blogging, reporting, and social media consulting. View her website and portfolio at www.aubreandrus.com or find her on Twitter @aubreandrus.