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I just received my first client for my fledgling website/database design/Hosting/IT support service. I've drafted up an Independent Contractor Agreement outlining the service, the charges, and a bunch of other random legal crap. So I guess my question is, what's next?
How do I go about arranging to make tax payments to the IRS? Has anyone here worked with NASE (National Association of the Self-Employed)? Are there any other tips anyone can provide?
I will be looking into starting my own company, eventually, I already have a few other clients lined up, but for now I'm going this route.
Any general advice from people in a similar situation would be greatly appreciated.
First off, the very first thing you do with your very first paycheck should be to arrange a consultation with a qualified accountant. She can tell you everything you need to know about dealing with federal and state taxes as a 1099 freelancer. There's just no substitute for a good CPA, and they more than pay for themselves in avoided pitfalls (and creative deductions come April :winky:).
The second thing you need to do is to establish LLC protection, even if you just want to freelance. If anything goes wrong on one of these projects (say, you overlook a MySQL real escape and someone compromises your database) and the company decides they've suffered ten thousand dollars in damages to their brand's reputation as result, you're personally liable for that in the "towing away your car" sense. The LLC filing gives your personal assets protection without affecting your taxes.
While I can't speak as someone who has done contracting, I can speak as someone who evaluates finances for clients who are oftentimes self-employed. Before I say another word: you need to go to a professional for the minute do-this, do-that advice.
From a "cover your back to avoid getting bent-over" perspective you just need to stay organized concerning your expenses. Make sure you keep a month-by-month record of the cash-flow in and out. Keep all receipts and file them in either an "expense" or "profit" folder for each month. After each month, go back and track your earnings in both gross and net.
If you keep good records, there's little the IRS can find issue with. You'll want help from a professional to file for year one, but you can probably file yourself after that.
The important thing is to have a paper trail for all cash that goes in and out. If you can track the numbers you'll be fine and will give you an actual idea of what you're bringing home each month.
Sir CarcassI have been shown the end of my worldRound Rock, TXRegistered Userregular
edited September 2008
My wife has been an IC for about 6 years now. I definitely recommend the CPA route. We went to H&R Block one year and it cost us $350 to file our taxes.... They base it on how many screens they use or something. We get our taxes done by a CPA now for about $175. My wife personally saves $400 a month 9 months out of the year for taxes, but your CPA should be able to tell you how much you'll personally need to have.
Like mentioned, just keep good records of everything and you should be fine. 3 years is a good average for keeping things, but I'd keep them as long as you have space for them.
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The second thing you need to do is to establish LLC protection, even if you just want to freelance. If anything goes wrong on one of these projects (say, you overlook a MySQL real escape and someone compromises your database) and the company decides they've suffered ten thousand dollars in damages to their brand's reputation as result, you're personally liable for that in the "towing away your car" sense. The LLC filing gives your personal assets protection without affecting your taxes.
From a "cover your back to avoid getting bent-over" perspective you just need to stay organized concerning your expenses. Make sure you keep a month-by-month record of the cash-flow in and out. Keep all receipts and file them in either an "expense" or "profit" folder for each month. After each month, go back and track your earnings in both gross and net.
If you keep good records, there's little the IRS can find issue with. You'll want help from a professional to file for year one, but you can probably file yourself after that.
The important thing is to have a paper trail for all cash that goes in and out. If you can track the numbers you'll be fine and will give you an actual idea of what you're bringing home each month.
I'm looking into finding a CPA to help me handle everything. I'm generally horrible with money, anyway, so it can't hurt.
Like mentioned, just keep good records of everything and you should be fine. 3 years is a good average for keeping things, but I'd keep them as long as you have space for them.