If you’re thinking about leaving your nine to five and becoming an independent contractor, there are many aspects to consider. As an independent contractor, you can make your own schedule, set your own rates, and choose the clients you want to work with. You don’t need to have vacation days approved by your boss and you’re not required to attend company-wide meetings about new human resources policies.
Companies are beginning to see the value in hiring independent contractors as opposed to full-time workers. When a company uses an independent contractor to complete a job, the contractor is only paid for the hours worked or for the completed project. The company usually finds this process less expensive than hiring a full-time worker. Without pressure to provide benefits, onboarding, or a workspace, the company saves money and time but still benefits from a specialized worker completing a project under a deadline.
Before you begin taking on work, it’s important to understand how to become a successful independent contractor. Review these four steps so you can ensure you’re making the right moves to build a successful career working for yourself.
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Choosing a Business Name
When you’ve identified the services you’ll provide, it’s time to choose a business name. Your name should reflect what you have to offer and should make it clear what type of business you’re in.
Being unique as a self-employed worker in a gig economy is important. The more creative you become with your name, the more likely you’ll stand out in a sea of other self-employed workers in the same industry. Play off your own name or something distinctive about what you offer when selecting your business name.
Marketing Your Business Name
Now that you’ve chosen the name that represents your business, let everyone know what you do. Marketing your business name is important because the more people you can communicate with, the more likely you are to start landing clients.
It’s important to look professional as you begin to market your business. Designing and printing marketing materials is one of the best ways to begin marketing your new gig. You can start with:
- Business cards;
Be sure your marketing materials are congruent and explain what you do and why clients should hire you. It’s also important to include your business name and logo on other important documents, such as invoices or proposals.
Opening a Bank Account for Your Business
Keeping your business expenses separate from your personal finances helps you keep better records of incoming and outgoing expenses. Before you get your first client, open a business bank account in your new business’s name.
When you invoice clients or spend money on business-related expenses, exclusively use this bank account. Having a separate account makes it easier when you’re doing your taxes or trying to calculate your income, expenses, or finances as a freelancer for the year.
Get a License
As an independent contractor, it’s important to know the laws in your state, city, or district as they relate to licensure and registration for independent contractors. Depending on your location and profession, you may be required to register with the state or county before you can legally work.
Although you’re self-employed and working from home, some local governments may still require that you maintain a license. It’s important to check in with your state and county to find out what you need to legally do business where you live. The license you need may also depend on how you choose to register your business.
Limited Liability Companies
Registering your business as a limited liability company (LLC) allows you to keep your business liability separate from your personal liability. As an LLC, you can open a bank account in its name and get a tax identification number. Many freelancers and small business owners register as LLCs because liability is limited and the structure of the company is simple.
S-Corp vs. C-Corp
An S-corporation (S-corp) is a type of corporation that’s similar to an LLC. It restricts the number of shareholders to 100 or less and follows the same tax and liability guidelines as an LLC, making it a good option for small business owners or self-employed independent contractors.
Every incorporated business starts out as a C-corporation (C-corp). These businesses must remain as C-corps if they don’t meet certain tax guidelines to reconfigure as S-corps. As a C-corp, the business must pay income taxes and the owner must pay personal income taxes as well. C-corps are separate entities from owners, so financial or legal liability cannot be transferred.
Pay Estimated Taxes
As an independent contractor, you’re responsible for filing and paying taxes yourself. Most independent contractors calculate the income they think they’ll earn and provide the Internal Revenue Service (IRS) with estimated tax payments throughout the year. Filing taxes as an independent contractor in this way eliminates the shock of a big tax bill in April.
While paying your own taxes may seem like a hassle, there are also perks to being an independent contractor. You can deduct your business expenses from your taxable income, such as internet service or office supplies.
Other Ways to Become an Independent Contractor
For many, becoming an independent contractor includes registering the business name and identifying as a corporation. While many self-employed workers need to follow these steps to set up their own independent contractor career, some gig economy workers may not need to complete this process.
If you plan to work for a company walking dogs in your spare time or driving people to their destinations, you can skip the step of figuring out a business name. Since you’re working exclusively for a company, you won’t need to come up with a name or market yourself. If you’re self-employed but only working a few hours a week, you may not need to register your business or incorporate it. However, you still need to pay taxes on the income you earned.
A career as an independent contractor allows you to make your own schedule and focus on what you enjoy doing. If you follow these steps to set up your business correctly, you can thrive in self-employment and successfully grow your business.
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