Clear it with your day job
Read your offer letter, handbook and any agreement you signed for three things: an outside-activities clause, a non-compete or non-solicitation clause, and an invention assignment clause, which may give your employer rights to anything you create that relates to its business, sometimes even on your own time. Never use the employer's laptop, software, hours or customer list. If the policy requires disclosure, disclose.
Pick a structure
You are a sole proprietor the moment you sell something, with no filing required. The drawback is that you and the business are legally the same, so a business debt or lawsuit reaches your personal assets. A limited liability company separates the two. Its filing fees and annual charges vary widely by state, from under $100 to $800 a year, and your secretary of state's site gives the figure. An LLC does not protect you from your own negligence, so insurance still matters.
- Get an employer identification number from the IRS, which is free, so that you need not hand your Social Security number to clients.
- Open a business checking account and run every business dollar through it, because mixed funds ruin your records and can undo an LLC's protection.
- Check city and county rules for a business license, and your state revenue department for a sales tax permit.
- Ask your insurer about coverage, because homeowner's, renter's and personal auto policies generally exclude business activity.
The tax reality
No one withholds for you. On net profit you owe ordinary income tax plus self-employment tax of 15.3 percent, which is both halves of Social Security and Medicare, and it applies once net earnings reach $400 for the year. All income is taxable whether or not a client or platform sends you a form. The IRS expects estimated payments four times a year, and a penalty accrues if you wait until April. Moving twenty-five to thirty percent of every payment into a separate savings account covers most people. Deduct legitimate costs, such as supplies, software and business mileage, and keep the receipts.
Prove it before spending
Get a paying customer before you buy a logo, a website or equipment. Price by working backward, because the rate that covers taxes, costs and unpaid administrative hours is usually far above what feels natural. Use a one-page written agreement for every job.
Note Book an hour with an accountant after your first profitable quarter, not the following April. Setting up the books correctly costs far less than reconstructing them.
