I’ve been freelancing for a bit and constantly feel unsure about my tax setup.
Initially, I treated it like a side gig, but now it’s my main source of income. I didn’t pay much attention to the business structure, which I think might complicate tax time.
Different structures seem to lead to different tax situations, and I’m trying to wrap my head around it.
Structure is important but you’re probably overthinking it right now. Most of us start as sole proprietors without even realizing it. That’s what happens when you just start taking freelance money.
Here’s what I learned the hard way:
The thing nobody tells you is that switching structures later isn’t that hard. I stayed sole prop for three years before doing anything else.
What matters more right now is getting your quarterly payments sorted out. If this is your main income, you probably need to pay estimated taxes four times a year or you’ll get hit with penalties.
Start tracking everything in a simple spreadsheet or app. Business expenses, mileage, home office costs. That stuff adds up and reduces what you owe.
Once you’re consistently making over 60k or so, then worry about LLCs and S Corp elections. Before that, keep it simple.
Yeah, business structure changes everything tax wise. I went through this same confusion when my side work became my main thing.
Most freelancers start as sole proprietors by default. You just report income on Schedule C with your personal return. Pay self employment tax on profits plus regular income tax.
I switched to an LLC after my second year. Same tax treatment as sole prop unless you elect otherwise, but gives you some protection. The real game changer was electing S Corp status once I hit consistent income.
With S Corp election, you pay yourself a reasonable salary and take remaining profits as distributions. Only the salary gets hit with self employment tax. Saved me thousands.
But honestly, if you’re just starting out or income varies a lot, sole prop is fine. The complexity of S Corp isn’t worth it until you’re making decent consistent money.
Get with a tax person who works with small businesses. Mine helped me figure out the right timing for each change.
Sole prop is probably what you are already. Just pay quarterly taxes and keep receipts for expenses.
Business structure affects your taxes but you can change it later if needed.
I stuck with sole proprietor for years. You report income and expenses on Schedule C and pay self employment tax on whatever profit you make. Simple enough.
The main thing is setting aside money for taxes every month. I put 25-30% of each payment into a separate account so I’m not scrambling when quarterly payments are due.
I just file Schedule C and save money for taxes.