How to Start a Freelance Business

Decide Between a Sole Proprietorship and an LLC

Most freelancers start as a sole proprietorship, the default if you do nothing else, which requires no state formation filing when working under your own legal name. An LLC adds a layer of liability protection, separating your personal assets from a client dispute or business debt, at the cost of a state filing fee and, in many states, an annual report. Many freelancers start as a sole proprietor to test the business, then form an LLC once income and client relationships become more substantial.

Get an EIN, Even if You Could Use Your SSN

The IRS allows a sole proprietor with no employees to use a Social Security number instead of an EIN, but getting a free EIN anyway means you can give that number to clients on a Form W-9 instead of your SSN, which is a meaningful privacy benefit when working with multiple clients.

Understand Self-Employment Tax

As a freelancer, no employer withholds Social Security and Medicare taxes from your pay, so the IRS requires you to calculate and pay them yourself through self-employment tax, a combined 15.3% rate (12.4% for Social Security and 2.9% for Medicare) once your net self-employment earnings reach $400 in a year, filed using Schedule SE. The Social Security portion applies only up to an annual wage base the IRS adjusts each year, while the Medicare portion applies to all net self-employment earnings, and an additional 0.9% Medicare tax can apply above certain income thresholds.

Pay Quarterly Estimated Taxes

Because nothing is withheld from freelance income automatically, the IRS generally requires making quarterly estimated tax payments if you expect to owe $1,000 or more for the year. The tax year is divided into four payment periods with their own due dates, and the IRS can charge an underpayment penalty even if you're due a refund when you file your annual return, so don't wait until tax season to start setting money aside.

Set Up Invoicing and Collect Form W-9s From Clients

Send clear, professional invoices with your payment terms, and be ready to provide a completed Form W-9 to clients who request one, since they'll need your taxpayer identification number to issue a Form 1099-NEC if they pay you $2,000 or more in the year under the IRS's updated reporting threshold for payments made after 2025.

Track Deductible Business Expenses

Freelancers can generally deduct ordinary and necessary business expenses, like a home office, equipment, software, and business travel, against freelance income. Keep receipts and records organized throughout the year rather than trying to reconstruct them at tax time, since well-documented expenses directly reduce the income your self-employment tax and income tax are calculated on.

Put Basic Contract Terms in Writing

Even a short agreement covering scope of work, deliverables, payment terms, and who owns the final work product protects you if a client dispute arises. This matters more for freelance work than it might seem, since freelancers often work without the formal procurement processes larger vendor relationships include.

Check Local Licensing

Many freelance services, writing, design, consulting, don't require an industry-specific license, but your city or county may still require a general business license regardless of your specific service. Check your local requirements rather than assuming freelance work is automatically exempt.

Set Aside Money for Taxes as You're Paid, Not at Year-End

Because nothing is withheld automatically, it's easy to spend freelance income as if it were all take-home pay. Setting aside a percentage of each payment for self-employment and income tax as it arrives avoids a painful surprise at filing time.

Multiple Clients Can Mean Multiple State Tax Questions

If you freelance for clients in other states, confirm whether that creates any state tax filing obligation beyond your home state, which can depend on where the work is actually performed rather than where the client is based.

A Written Scope Protects Against Scope Creep

Freelance projects without a clear written scope are prone to expanding without additional pay. A simple, specific description of deliverables in your agreement gives you something concrete to point to if a client asks for significantly more than was originally discussed.

This Is Not Tax or Legal Advice

How much to set aside for taxes, whether quarterly payments are required for your situation, and which expenses are deductible depend on your specific numbers. Talk to a tax professional, especially in your first year of freelancing when the estimated tax process is unfamiliar.

Revisit Your Structure as Income Grows

As freelance income grows, revisit whether an LLC, or an S corporation election for an eligible LLC, could reduce your tax burden or better protect your personal assets. What made sense at a lower income level isn't always still the best fit once the business is more established.