Working for Yourself

Law & Taxes for Independent Contractors, Freelancers & Consultants

Working for Yourself

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Working for Yourself

New Edition!

, 10th Edition

Self-employed or considering being your own boss? Whether you're an independent contractor, freelancer, or booking gigs on the side, it all adds up to the same thing: you need to be more aware of laws and taxes than the average person. Get all the information you need to know to:

  • obtain permits and licenses
  • comply with strict IRS rules
  • avoid unfair contracts
  • get insurance for youself and your business

See below for a full product description.

 

Available as part of the Nolo's Home Business Bundle

The all-in-one legal and tax resource every IC (and gig worker) needs

Ready to be your own boss? Whether you’re starting a full-scale consulting business or booking gigs on the side, Working for Yourself provides all the legal and tax information you need in one place. This excellent, well-organized reference will show you how to:

  • decide the best form for your business (sole propreitor, LLC, or other)
  • make sure you're paid in full and on time
  • pay estimated taxes (and avoid trouble with the IRS)
  • take advantage of all available tax deductions (including home offices)
  • choose health, property, and other kinds of insurance
  • keep accurate records in case you get audited, and
  • write legally binding contracts and letter agreements.

Tired of doing endlress web searches for legal and tax information? Want one easy-to-use and authoritative resource for everything you need to start and run your business?  Then, this book is for you.

 

“As an independent contractor, you are your boss. This is why Fishman’s book is so important.”-New Orleans Times-Picayune

“Covers everything independent contractors need to know.”-Business Life

ISBN
9781413323696
Number of Pages
560
Included Forms

    Forms and Documents

    • Asset Log
    • Expense Journal
    • Income Journal
    • Invoice

    Sample Agreements

    • General Independent Contractor Agreement
    • Contract Amendment
    • Nondisclosure Agreement

Welcome to the World of Self-Employment: Introduction to Working For Yourself

  • A Golden Age for the Self-Employed
  • Six Things You MAy Not Know About the Self-Employed

1. Working for Yourself: The Good, the Bad, and the Ugly

  • Working for Yourself: The Good
  • Working for Yourself: The Bad
  • Working for Yourself: The Ugly
  • How This Book Will Help You Succeed at Self-Employment

2. Choosing the Legal Form for Your Business

  • Sole Proprietorships
  • Corporations
  • Partnerships
  • Limited Liability Companies (LLCs)

3. Choosing and Protecting Your Business Name

  • Choosing a Legal Name
  • Choosing a Trade Name
  • Choosing a Trademark
  • Choosing an Internet Domain Name
  • Conducting a Name Search

4. Home Alone or Outside Office?

  • Pros and Cons of Working at Home
  • Restrictions on Home-Based Businesses
  • Deducting Your Home Office Expenses
  • Pros and Cons of an Outside Office
  • Leasing a Workplace
  • Deducting Your Outside Office Expenses

5. Obtaining Licenses, Permits, and Identification Numbers

  • Business Licenses
  • Employer Identification Numbers (EINs)
  • Sales Tax Permits

6. Insuring Your Business and Yourself

  • The Health Care Reform Act ("Obamacare")
  • Disability Insurance
  • Business Property Insurance
  • Liability Insurance
  • Car Insurance
  • Workers’ Compensation Insurance
  • Other Types of Insurance
  • Ways to Save on Insurance

7. Pricing Your Services and Getting Paid

  • Pricing Your Services
  • Getting Paid

8. Taxes and the Self-Employed

  • Tax Basics for the Self-Employed
  • IRS Audits
  • Ten Tips to Avoid an Audit

9. Reducing Your Income Taxes

  • Reporting Your Income
  • Income Tax Deduction Basics
  • Business Use of Your Home
  • Cost of Business Assets
  • Car Expenses
  • Travel Expenses
  • Entertainment and Meal Expenses
  • Health Insurance
  • Retirement Accounts
  • Start-Up Costs

10. The Bane of Self-Employment Taxes

  • Who Must Pay
  • Self-Employment Tax Rates
  • Earnings Subject to SE Taxes
  • Paying and Reporting SE Taxes
  • Outside Employment

11. Paying Estimated Taxes

  • Who Must Pay Estimated Taxes
  • How Much You Must Pay
  • When to Pay
  • How to Pay
  • Paying the Wrong Amount

12. Rules for Salespeople, Drivers, and Clothing Producers

  • Statutory Employees
  • Statutory Independent Contractors

13. Taxes for Workers You Hire

  • Hiring People to Help You
  • Tax Concerns When Hiring Employees
  • Tax Concerns When Hiring Independent Contractors

14. Record Keeping and Accounting Made Easy

  • Simple Bookkeeping
  • How Long to Keep Records
  • If You Don’t Have Proper Tax Records
  • Accounting Methods
  • Tax Year

15. Safeguarding Your Self-Employed Status

  • Who Decides Your Work Status?
  • What Happens If the Government Reclassifies You?
  • Determining Worker Status
  • The IRS Approach to Worker Status
  • Tips for Preserving Your IC Status

16. Special Concerns for Gig Workers

  • Introduction to the Gig Economy
  • Your Contract With the Hiring Platform
  • Your Worker Status
  • Your Taxes
  • Your Insurance
  • Other Legal Requirements for Gig Workers
  • Where to Find Gigs

17. Copyrights, Patents, and Trade Secrets

  • Intellectual Property
  • Copyright Ownership
  • Patent Ownership
  • Trade Secret Ownership
  • Using Nondisclosure Agreements

18. Using Written Client Agreements

  • Reasons to Use Written Agreements
  • Reviewing a Client’s Agreement
  • Creating Your Own Client Agreement
  • Putting Your Agreement Together
  • Changing the Agreement After It’s Signed

19. Drafting Your Own Client Agreement

  • Essential Provisions
  • Optional Provisions
  • Sample Client Agreement
  • Using Letter Agreements

20. Reviewing a Client’s Agreement

  • Make Sure the Agreement Is Consistent With the Client’s Promises
  • Make Sure the Contract Covers at Least the Basics
  • Provisions to Avoid
  • Provisions to Consider Adding
  • Client Purchase Orders

21. Help Beyond This Book

  • Mediation and Arbitration
  • Filing a Lawsuit
  • Bankruptcy for the Self-Employed
  • Finding and Using a Lawyer
  • Help From Other Experts
  • Doing Your Own Legal Research
  • Researching Federal Tax Law

Appendix

  • Using the Downloadable Forms on the Nolo Website
  • Editing RTFs
  • List of Forms Available on the Nolo Website

Index

Chapter 1
Working for Yourself: The Good, the Bad, and the Ugly

Working for Yourself: The Good

   Independence

   Higher Earning Potential

   Tax Benefits

Working for Yourself: The Bad

Working for Yourself: The Ugly

   Double Social Security/Medicare Tax

   Personal Liability for Debts

   Deadbeat Clients

How This Book Will Help You Succeed at Self-Employment

 

                                                                              

Before you delve into the following chapters, here's a quick overview of the pros and cons of being self-employed as compared to being an employee. It may help you make an informed decision if you’re thinking about striking out on your own, or help confirm that you made the right decision if you’re already working for yourself.

Working for Yourself: The Good

Being self-employed can give you more freedom and privacy than working for an employer. It can also result in substantial tax benefits.

Independence

Most self-employed people bask in the freedom that comes from being in business for themselves and being their own boss. The amount of money you make is directly related to the quantity and quality of your work; unlike most employees, you don't need ask your boss for a raise—you simply go out and find more work.

Likewise, if you’re self-employed, you’re normally not dependent upon a single company for your livelihood, so the hiring or firing decisions of any one company won’t have the same impact on you as on that company’s employees.

This sentiment expressed by one self-employed person sums it up: “I can choose how, when, and where to work, for as much or as little time as I want. In short, I enjoy working for myself.”

Higher Earning Potential

While how much you’re paid is a matter for negotiation between you and your clients you can often earn more when you’re self-employed than as an employee for someone else’s business (especially if your skills are in great demand).

Tax Benefits

Self-employment also provides many tax benefits that aren’t available to employees. Most important, you can take advantage of many tax deductions that are limited or unavailable for employees. When you’re self-employed, you can deduct any necessary expenses related to your business from your taxable income, as long as they are reasonable in amount and ordinarily incurred by businesses of your type. This may include, for example, office expenses (including those for home offices), travel expenses, entertainment and meal expenses, equipment costs, and insurance payments.

In addition, no federal or state taxes are withheld from your paychecks by an employer as they must be for employees. Instead, the self-employed normally pay their own estimated taxes directly to the IRS four times a year. This means you can hold on to your hard-earned money longer. It’s up to you to decide how much estimated tax to pay (although there are penalties if you underpay). The lack of withholding combined with control over estimated tax payments can result in improved cash flow for the self-employed.

In contrast to the numerous deductions available to the self-employed, an employee’s work-related deductions are severely limited. Some deductions available to the self-employed may not be taken by employees. For example, an employee may not deduct the cost of commuting to and from work, but a self-employed person traveling from his or her office to that of a client may ordinarily deduct this expense. Even those expenses that are deductible for an employee may be deducted only to the extent they add up to more than 2% of the employee’s adjusted gross income. This means that most of an employee’s expenses related to employment cannot be deducted fully.

In addition, the self-employed can establish retirement plans, such as SEP-IRAs and solo 401(k) plans, that have tax advantages. These plans also allow them to shelter a substantial amount of their incomes until they retire.

Because of these and other tax benefits described later in this book, the self-employed often ultimately pay less in taxes than employees who earn similar incomes.

Working for Yourself: The Bad

Despite its advantages, being self-employed is no bed of roses. Here are some of the major drawbacks:

No job security. When you’re an employee, you must be paid as long as you have your job, even if your employer’s business is slow. If you’re self-employed and don’t have business, you don’t make money. As one self-employed person says: “If I fail, I don’t eat. I don’t have the comfort of punching a time clock and knowing the check will be there on payday.”

No free benefits. Although not always required by law, employers often provide their employees with health insurance, paid vacations, and paid sick leave. More generous employers may also provide retirement benefits, bonuses, and even employee profit sharing. When you’re self-employed, you get no such benefits—for example, you must pay for your own health insurance. (Fortunately, you can obtain health insurance through Obamacare, even if you have preexisting medical condition.) Time lost due to vacations and illness comes directly out of your bottom line. And you must fund your own retirement.

No unemployment insurance. Because hiring firms (companies that hire self-employed people) do not pay unemployment compensation taxes for the self-employed, you cannot collect unemployment benefits when your work for a firm ends.

No workers’ compensation. Employers must generally provide workers’ compensation coverage for their employees, which provides benefits for injuries that occur on the job (even if the injury was the employee's own fault). In contrast, hiring firms do not provide workers’ compensation coverage for the self-employed people they hire. If a work-related injury is a self-employed person’s fault, he or she has no recourse against the hiring firm. And even if it’s the hiring firm’s responsibility, the self-employed person will have to deal with the expense and hassle of a lawsuit.

No free office space or equipment. Employers normally provide their employees with an office or space in which to work and the equipment they need to do the job. This is not usually the case when a company hires a self-employed person, who must normally provide his or her own workplace and equipment.

Few or no labor law protections. A wide array of federal and state laws that protect employees from unfair exploitation by employers (such as wage and hour rules and requirements for family and medical leave) don't typically apply to the self-employed.

Complete business responsibility. When you’re self-employed, you won't have a company payroll department to withhold and pay taxes for you.  You must run your own business—for example you’ll need to have at least a rudimentary record-keeping system or hire someone to keep your records for you for taxes and other purposes.

Others may discriminate. Because you don’t have a guaranteed annual income as employees do, insurers, lenders, and other businesses may refuse to provide you with services or may charge you more than employees for similar services. It can be difficult, for example, for a self-employed person to obtain disability insurance, particularly one who works at home. Also, it may be more difficult to buy a house because lenders are often wary of self-employed borrowers. To prove you can afford a loan, you’ll likely have to provide a prospective lender with copies of your recent tax returns and a profit and loss statement for your business.

Working for Yourself: The Ugly

Unfortunately, the bad aspects of self-employment discussed above do not end the litany of potential woes. Being self-employed can, in some respects, get downright ugly.

Double Social Security/Medicare Tax

For many, the ugliest and most unfair thing about being self-employed is that you must pay twice as much Social Security and Medicare taxes as employees. Employees pay a 7.65% tax on their salaries, up to a salary amount capped by the Social Security tax limit ($127,200 in 2017). Employers pay a matching amount. In contrast, self-employed people must pay the entire tax themselves—a 12.4% Social Security tax up to the annual ceiling, and a 2.9% Medicare tax on all their income (more if their income is over $200,000/$250,000, as discussed below); this amounts to a whopping 15.3% tax on their income up to the Social Security ceiling ($127,200 in 2017). This is in addition to federal and state income taxes. In practice, the Social Security/Medicare tax comes to less than 15.3% because of certain deductions, but it still takes a big bite out of what you earn from self-employment.

As mentioned above, self-employed people must pay Medicare tax on their net self-employment income over the Social Security ceiling. This is a 2.9% tax on income from $127,200 to $200,000 in net self-employment income for singles and $127,200 to $250,000 for married couples filing jointly. High earners will owe a 3.8% tax on all net self-employment income that exceeds these amounts.

Personal Liability for Debts

Employees are not liable for the debts incurred by their employers. An employee may lose his or her job if the employer’s business fails but will owe nothing to the employer’s creditors.

This is not necessarily the case when you’re self-employed. If you’re a sole proprietor or partner in a partnership, you are personally liable for your business debts. You could lose much of what you own if your business fails. However, there are ways to decrease your personal exposure, such as obtaining insurance, as discussed in a later chapter.

Deadbeat Clients

Ugliest of all, you could do lots of business and still fail to earn a living. It can be difficult to get clients to pay you on time or at all. When you’re self-employed, you bear the risk of loss from deadbeat clients. The government is not going to help you collect on your clients’ unpaid bills.

Clients who pay late or don’t pay at all have driven some self-employed people back to the ranks of the wage slaves. However, there are many strategies you can use to help alleviate payment problems as discussed in later chapters.

How This Book Will Help You Succeed at Self-Employment

Despite the challenges, millions of people are happily self-employed today. Indeed, most successfully self-employed individuals would never go back to wage slavery.

The purpose of this book is to help you achieve all the financial and personal benefits of working for yourself. We’ll show you how to make what’s good about self-employment even better, make the bad aspects less daunting, and—hopefully—make the ugly aspects a little more attractive.

Spending a few hours now to learn the legal, tax, and practical nuts and bolts of self-employment will save you countless headaches—not to mention substantial time and money—later on.

Don’t worry! The mere fact that you’ve chosen to take the time and trouble to read this book shows that you have what it takes to be successful working for yourself. 

This Book Comes With a Website

Nolo’s award-winning website has a page dedicated just to this book, where you can:

DOWNLOAD FORMS - All forms in this book are accessible online. After purchase, you can find a link to the URL in Appendix A.

KEEP UP TO DATE - When there are important changes to the information in this book, we will post updates

And that’s not all. Nolo.com contains thousands of articles on everyday legal and business issues, plus a plain-English law dictionary, all written by Nolo experts and available for free. You’ll also find more useful books, software, online services, and downloadable forms.

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