Should freelancers form their own corporation?

Jun 5, 2015 by jgordon@unitedmediaguild.org

Freelancers in the media industry typically operate as sole proprietors from the tax standpoint. As such, they must pay self-employment tax on their net income.

Would they gain any benefit from forming a corporation?

Perhaps, depending on the scope of their operation. By electing to be taxed as S Corporation, they could pay themselves in both salary (subject to self-employment tax) and distributions (not taxed as self-employment tax).

Writing for Small Business Trends, Amy Akalp offered this warning:

Be careful when splitting your payment this way as the IRS watches carefully to make sure S Corporation owners are paying themselves a fair salary for the work they do, and aren’t just getting paid in distributions

Freelancers should enlist the help of a professional tax adviser while structuring their corporation and classifying their compensation.

Aklap cited some other possible benefits from forming a corporation:

• If you hire employees, contractors or subcontractors, an LLC/corporation can limit liability caused by negligence or misdeeds by these employees.
• These business structures can protect your personal assets in matters of contractual liability – should your business not be able to hold up its end of a contract. For example, if your business needs financing to buy property or equipment, an LLC/corporation can help protect your personal assets (as long as you don’t personally guarantee the loan!).
• Larger companies typically prefer to work with corporations or LLCs, not sole proprietors . . . There are significant tax implications when a corporation hires a sole proprietor as a contractor . . . there’s a chance that the IRS will double check to make sure that worker is truly operating as a contractor and not as an employee. But this isn’t a concern when a business hires an LLC or corporation to do the work.

She also notes that:

Forming an LLC or corporation won’t automatically protect your personal assets in all situations. You’re still responsible for your personal actions regardless if your business is a corporation or a sole proprietorship.

And since freelancers personally provide services, they can be liable for their conduct.

The bottom: Forming a corporation is worth considering, but only after consulting with a tax professional.

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Questions to ask before starting your freelance career

May 20, 2015 by jgordon@unitedmediaguild.org

Carrie Smith, writing on Time.com, offered five questions you should ask before quitting your day job to freelance full time.

How much should you save?

This depends on your overall situation, of course. Are your the primary wage-earner in a household? What do your expenses look like? How much business do you expect to generate in the first three months, six months and so forth?

Smith writes:

Most experts suggest that you keep at least three to six months’ worth of expenses in a separate savings account to cover any emergencies or losses of income (some even suggest as much as twelve months’ worth). As a freelancer you might as well double this amount to account for the added risk of being self-employed.

What is you bare minimum budget?

Look at your entire year and every anticipated or likely cost. Average that out over the 12 months to see how much income you must average to make a go of it — and how much money you should build up in your checking account to pay the business while you build business.

Smith writes:

Calculate how much money you need to adequately pay your bills every month, then multiply this figure by six to eight months. This is the amount you’ll need to save in a separate account to make the transition from a day job to freelancing a successful one.

Do you have any other income?

A related part-time job can ensure cash flow while you build business. Many freelancers also lead seminars for a fee or teach college courses as contract employees.

Smith writes:

One other way to make this process much easier is creating multiple streams of income. Aside from your core freelance duties, do you have other options for creating passive income? What other assets can you leverage to bring in more money each month?

Are you prepared to do what it takes to build business?

Building a vibrant freelance business can take a lot of time and effort. It is not an easy way out of the workaday world.

Smith writes:

How much time you spend in the beginning will determine how quickly you’re able to replace your day job’s income. There will likely be a lot of sleepless nights and stressful days, but in the end you have to determine if the reward is worth all the effort. Freedom is never free, and this includes financial freedom. You have to figure out if the cost is worth it.

What is your Plan B?

Be aware that succeeding as a full-time freelancer is not easy. The more money you set aside, the more time you have to make it. But what if you don’t make it?

Smith writes:

Create a plan of action for this specific event. List out the possible solutions and scenarios for how you and your family will deal with this. Are you going to find another full-time job? Will you be able to move back in with your parents?

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Writing for digital markets vs. print markets

May 12, 2015 by jgordon@unitedmediaguild.org

Jason Steele has an excellent post on The Freelancer blog comparing the challenges and rewards of writing for digital markets as opposed to traditional print publications.

Here are some highlights of his thoughts:

Whenever someone checks out an article online, there are links to a dozen other pieces vying for attention just a click away. And as former Slate writer Farhad Manjoo explained in his popular 2012 article about reader habits, odds are most people won’t finish what they read on the Internet. Digital editors are well aware of this, and as a result, they insist on content that clearly informs the audience from the beginning.

In contrast, the reader of a magazine or newspaper has made a significantly larger investment of effort, time, and money to select an article. So even if a magazine article takes a few paragraphs before getting to the nut graph, the reader is less likely to just flip the page and move on the way we tend to do with online content.

While readers may stare at their computer monitors all day, they rarely focus on a single article for more than a minute or two. That’s why the vast majority of what’s written for the Internet is under 1,000 words. Reading multi-page articles online can be a frustrating challenge, but taking in longform content in print, or at least on an e-reader, tends to be much more enjoyable.

Great longform journalism still gets published on the web every day, but it often comes from outlets traditionally known for print. But considering what it takes to keep up with the speed of news, longer articles just aren’t cost effective for anymore for a lot of online outlets.

Online journalism has created an interesting relationship between sourcing and accountability. While digital writers are expected to be their own authority, their readers will take note of any errors in real time. Make a specious claim in print, and your editor will publish a reader’s letter rebutting it or print a retraction in the next edition. Try that online and, within minutes, you will be barraged in the comments sections by knowledgeable readers and trolls alike.

Readers still have the opportunity to engage with print writers over social media, but online readers can comment on the writer’s work just below the article itself, where their opinions are much harder to ignore. And for some digital publications, editors even demand that writers participate and respond to questions and constructive criticism.

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Making that transition to blogging

May 6, 2015 by jgordon@unitedmediaguild.org

Good writing comes in all forms. One of these forms is blogging, a form that news reporters (inverted pyramid) and long-form narrative writers can struggle with.

Alexis Grant offers this advice and much more on her blog, The Write Life:

I’ve hired writers with excellent reputations and experience… only to find out they don’t know how to blog.

What’s the difference? Blogging requires a certain style, a conversational voice that’s fun and interesting to read. And while we all hate to admit there’s a formula for good writing — because the best writers can deviate from it and still hit the nail on the head — most blog posts do follow certain guidelines. They include an engaging introduction that pulls the reader in, they talk to the reader in the “you” voice, and they’re broken down into sections or bullets that are easy to read and digest online.

If you’re able to deliver well-written blog posts consistently, editors will clamor to hire you!

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Freelancers need infrastructure too

Apr 30, 2015 by jgordon@unitedmediaguild.org

It is always interesting to read “mistakes I made when I started freelancing” pieces. We tend to find easier professional paths the hard way, though lots of trials and many errors.

Kayli Barth hit a responsive chord with these thoughts and others in The Freelance Hustle blog:

When I first started out I didn’t want to pay for any tools. I couldn’t justify paying $10/month for an invoicing system. It took me a good 3 months before I realized that the time I spent manually calculating my hours and creating invoices was time I could have spent earning money. Eventually I signed up for Paymo and have never looked back! Invoicing now takes me less than 5 minutes a month.

And . . .

Onboarding clients. Collecting feedback. Getting Referrals. Scheduling social media. I had processes for NONE of these things. I was wasting a massive amount of time talking to potential clients that I would never end up working with because it was a terrible fit. I never asked for testimonials that I could use on my site. I would have weeks of radio silence on my social channels. Once I finally realized that I could be prepared for all of these things, I set up processes and started making running my business so much easier on myself.

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