As a freelancer, you’re certainly in the minority when it comes to the type of work you do. Let’s face it: Most of your friends and relatives are employed by outside employers that pay them an hourly wage and take care of their heath and life insurance, tax deductions, retirement, tuition, etc. When these individuals are promoted or switch jobs, their employers deal with all the legal and financial paperwork. Thus, the majority of the people you know have no idea about what a freelancer needs to do when taking on new clients, securing payments or reporting taxes. As a result, freelancing can be a lonely as well as risky business.

The good news is that there are many freelance business organizations that provide useful advice and forms to freelancers. The Freelancers Union is one such organization. Freelance Switch is another. I’ve also listed seven key points that you should keep in mind when working freelance or as an independently contracted agent:

1. Pay your quarterly taxes. Employees at a company typically have a portion of their weekly or monthly pay withheld for taxes but that is not the case for freelancers. Just remember that what you see on your clients’ paychecks is not all yours. Estimate how much money you earned last year from your business by downloading and filling out IRS form 1040-ES. If this is your first year as a freelancer, you’ll have to estimate how much you plan to earn this year. Fortunately, you can change your earnings estimate as the year progresses. Form 1040-ES also contains blank vouchers that you may use to send in your estimated quarterly tax payments. Quarterly tax payments, as the name suggests, are sent to the IRS every three months. If you skip out on paying them, you will be assessed a penalty fee come tax time.

2. Learn how to create invoices. Most if not all of your clients will ask for invoices based on your work hours or projects. Invoices are great because they not only allow you to see how much profit you’re making on a given client, but also how much this client is costing you in terms of fees and extraneous expenses. If you’ve never created an invoice, don’t fret: Perform an online search using the keywords “invoice software” and you’ll find various invoice programs at your disposal, many of which are free. Common desktop programs like Microsoft Excel also offer invoice templates.

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3. Sign a contract. Surveys conducted by the Freelancers Union report that 77% of freelancers have had issues with a client not paying for services rendered. With first-time clients or large projects, you should create and sign a contract before starting any work. This protects you from not being paid once your work is finished and it also helps define the parameters (e.g., timeframe) of the project. A contract can also stipulate that some of your payment be upfront, ensuring that, even if your client bails, you’ll have made at least some money from your efforts. The Freelancers Union offers a great freelance contract creator.

4. Get a DBA bank account. If you’ve decided to name your business, clients may send you checks in your business’ name. A bank will typically not cash or deposit any check that does not have your name on it. To alleviate this situation without forming an LLC (Limited Liability Corporation), go visit your city hall and see if you can obtain a “doing business as” or DBA for yourself. This typically requires filling out a short form and having it notarized (and paying a nominal fee) in your city hall’s recorder of deeds office. The recorder of deeds will then send back the signed form to you and you can take this document to the bank. In some cases, the document will be sufficient to allow your check to be cashed; alternately, the bank may ask you to open a business account using your DBA designation.

5. Form an LLC. If you are working as a professional in a field that is fraught with lawsuits (e.g., investment services), consider forming an LLC instead of running your business as a sole proprietorship/partnership. The benefits of an LLC are many but, most notably, include the limitation on being sued if something goes wrong. Sure, your business itself might get sued, but you and your personal assets are left alone. Should you get sued as a sole proprietorship/partnership, you as well as your business partners could face personal bankruptcy.

6. Hire an accountant. Especially if this is your first year as a freelancer, it may be of benefit for you to have your finances looked over by an accountant. S/he can make suggestions on how you can streamline your expenses and also what steps you should be taking to maximize business deductions come tax time. Accountants need not cost you an arm and a leg; many of them also work as freelancers and might even give you a first-time fellow freelancer discount.

7. Don’t let your health insurance lapse. Many freelancers wrongly assume that individual health insurance will be too expensive for them to afford. As a result, they let their old employer’s coverage lapse and don’t purchase a new policy- a big mistake should they get sick or end up in an accident. You can always opt for a high deductible health insurance plan that includes a Health Savings Account or HSA. In an older ITT post, I discuss the pros and cons of obtaining an HSA insurance plan.


Becoming a freelance worker can be daunting: Not only are you now in charge of finding your own clients and work, but you must also think about taxes, health insurance and retirement planning. If you are unable to secure work for a period of time, you need a backup plan (i.e., savings) to cover your expenses and bills until you are paid again. Despite these issues, most freelance workers would never go back to being employed; being one’s own boss and having a flexible work schedule are just some of the many benefits of working freelance. Likewise, feeling the “startup rush” as you build your business from scratch and see it flourish just can’t be duplicated in a cubicle-dwelling environment.

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Join the Discussion

  • Halina

    It’s great to hear that this advice was useful to you, Alexander! I’ve been a FT freelance writer for almost a year now and am still learning the ropes. Good luck to you.

  • Alexander Cash
    Alexander Cash

    Thank you so much for sharing these great tips. The financial and legal aspects of freelancing/running your own business can be so tricky, but this definitely helped!

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