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How should I handle freelance or small business income?

Jan 09, 2012 by Kinhung from San Diego, CA in  |  Flag
2 Answers  |  5 Followers
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8 votes
Josh Patrick Level 17

If you're serious about your freelance business you should either become an LLC or incorporate your business. The form of business that you choose should involve a discussion between your attorney and or your CPA. We've found that business owners that treat their businesses like businesses tend to have better financial outcomes.

1 Comment   |  Flag   |  Jan 10, 2012 from South Burlington, VT
Brice Thompson, AWMA, AAMS

Josh is correct. I would add that if your business includes tangible assets like real estate, equipment, etc then use an LLC for liability protection and eliminating potential double-taxation of FICA. If your business is purely income producing(intellectual property, not tangible assets), then you may consider incorporating. It offers the same liability protection with more flexibility in shielding revenue from over-taxation. You have to establish a set "salary" for estimated taxes, FICA, etc and the rest as dividends. Check with your CPA to insure you are doing it correctly.

Flag |  Apr 12, 2012 near Columbus, GA

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3 votes

As a business owner you'll have a host of tax planning strategies available to you. In addition to the asset and creditor protections afforded to you by organizing as a corporation or LLC, you'll also have the opportunity to use the tax code to your advantage to possibly minimize your taxable income while contributing more to your retirement (through a SEP, SIMPLE or solo 401k, for example) and even supplementing your health insurance benefits (with the use of a Section 105 Medical Expense Reimbursement Plan).

To determine the best way to treat this type of income, you'll need to do a pro forma of the projected income, expenses and taxes. There are off-the-shelf programs that can do this. Or your financial adviser or tax preparer may be able to do this for you.

View all 4 Comments   |  Flag   |  May 17, 2012 from Amesbury, MA
Randy Brunson

Note though, that if you choose to organize, there is some initial and ongoing business administration involved, which you will either need to be responsible for, or outsource to someone. Hope this helps.

Flag |  Aug 04, 2016 near Suwanee, GA

If you don't have any idea how and where to invest so you can hire a financial planner for this purpose. The financial advisor Portland Oregon can manage your personal finances efficiently.

Flag |  Nov 08, 2018

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