Freelancers, Here’s How To Protect And Structure Your Business

This is the fourth in a series of articles on managing your finances as a freelancer. Read part 1, onbudgeting for freelancers, part 2, ontaxes for freelancers,part 3 on how to save for retirement, pay down debt and handle splurges.

Working for yourself and being your own boss can be exhilarating, but unless you prepare ahead of time for potential pitfalls, you can be rudely awakened to the fact that self-employment doesn’t come with its own safety net .

When you’re first starting out, this becomes evident in small ways — when you catch the flu, you’re not just bedridden for a few days, you’re rendered incapable of earning money for that time. If you want to take a three-week vacation and you receive most payments by check, you need another plan for replenishing your account while you’re gone.

At the other extreme are people who run sole proprietorships, never incorporate, and then have their personal assets wiped out when their business goes under. If the business’s creditors bring lawsuits against the owner and are successful, it’s her or his personal money that will be used to pay them.

On the flip side, if your business grows, you may begin paying more taxes than necessary — a problem you can resolve by filing taxes as what is called an S-corporation.

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