Launch your freelance career with the right foundation. Covers business structure, pricing strategy, contracts, invoicing, emergency fund, portfolio, networking, and tax obligations.
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Business Structure
Choose between sole proprietorship and LLC based on liability needs
A sole proprietorship costs $0 to set up and works for most freelancers starting out. An LLC costs $50-$500 depending on your state and provides liability protection — your personal assets are separated from business debts. If your work carries risk of lawsuits (consulting, design, development), an LLC is worth the cost.
Register your business name with your state if required
If you freelance under your own name, no registration is needed in most states. If you use a business name (a DBA — 'doing business as'), you need to file with your county or state. Registration typically costs $10-$50 and takes 1-2 weeks. Check your state's Secretary of State website.
Get an EIN (Employer Identification Number) from the IRS
An EIN is free and takes 5 minutes to get online at irs.gov. You need it to open a business bank account, file business taxes, and work with clients who require a W-9. Even sole proprietors benefit from using an EIN instead of their Social Security number on invoices.
Open a separate business bank account
Mixing personal and business finances is the most common freelancer mistake and creates a tax nightmare. Open a dedicated checking account for all business income and expenses. Many banks offer free business checking with no minimum balance. Do this before your first invoice.
Pricing Strategy
Calculate your minimum hourly rate based on expenses and income goals
Add your target annual income + taxes (30% of income) + business expenses + health insurance + retirement savings. Divide by 1,000 billable hours (realistic for a full-time freelancer). If you need $80,000/year after taxes, your minimum rate is roughly $115-$130/hour. Most new freelancers underprice by 30-50%.
Research competitor rates in your niche and experience level
Ask other freelancers directly (many will share ranges), check freelance rate surveys, and review job postings with listed budgets. Position your rate based on your experience: entry-level rates are fine for the first 6 months, then raise them by 15-25% as you build client results.
Decide between hourly, project-based, or retainer pricing models
Hourly works for unpredictable scope. Project-based is better for defined deliverables (and rewards your efficiency). Monthly retainers provide predictable income — aim for 2-3 retainer clients as your base. Most successful freelancers use a mix: retainers for stability, project fees for one-off work.
Build a rate card with at least 3 service tiers
Offer a basic, standard, and premium package for your most common service. Three tiers let clients self-select and make the middle option feel like the best value. A rate card also speeds up sales conversations — instead of custom quoting every project, point clients to your packages.
Contracts and Legal
Create a standard freelance contract template
Your contract must include: scope of work, payment terms, deadlines, revision limits, intellectual property transfer, cancellation clause, and liability limitations. Use a lawyer-reviewed template as your starting point — modifying a professional template costs $200-$500 versus $1,500+ for a custom contract.
Define clear payment terms: deposit, milestones, and late fees
Require 25-50% upfront before starting work. Set payment due dates (net 15 or net 30) and include a late fee clause (1.5% per month is standard). For projects over $5,000, use milestone payments tied to deliverables. Never complete 100% of work before receiving at least 50% payment.
Include a kill fee clause for cancelled projects
A kill fee protects you if a client cancels mid-project. Standard terms: the client pays for all completed work plus 25-50% of the remaining contract value. Without this clause, a client can cancel after you have blocked your schedule and leave you with nothing.
Invoicing and Finances
Set up an invoicing system and create a professional invoice template
Your invoice should include: your business name, EIN, client name, invoice number, date, itemized services, total amount, payment terms, and payment methods accepted. Invoice numbering (001, 002, 003) helps with tracking. Send invoices the same day work is delivered — delays in invoicing cause delays in payment.
Accept multiple payment methods: bank transfer, online payment, and checks
Make paying you as easy as possible. Bank transfer (ACH) is free for both parties. Online payment processors charge 2.9% + $0.30 per transaction but reduce payment friction. At $5,000+ per invoice, the processing fee is worth the faster payment. Include payment links directly in your invoice.
Track every business expense from day one
Software subscriptions, home office costs, equipment, internet (business percentage), travel, meals with clients, professional development — all are deductible. Use an accounting tool or simple spreadsheet. Freelancers who track expenses save $2,000-$8,000 per year in taxes compared to those who do not.
Financial Safety Net
Save 3-6 months of living expenses before going full-time freelance
Freelance income is unpredictable, especially in the first year. Your savings cover the gaps between client payments, slow months, and the time it takes to build a pipeline. If your monthly expenses are $4,000, save at least $12,000-$24,000 before cutting your salary.
Set up health insurance through the marketplace or a professional association
Open enrollment for marketplace plans runs November-January for most states. Monthly premiums range from $300-$700 for individuals depending on your plan and income. Professional associations in some industries offer group rates. Factor health insurance into your pricing — it is your biggest new expense.
Open a retirement account: SEP-IRA or Solo 401(k)
A SEP-IRA lets you contribute up to 25% of net self-employment income (max ~$69,000/year). A Solo 401(k) has similar limits but also allows employee contributions. Both reduce your taxable income. Start contributing from your first profitable month — self-employed retirement savings is entirely on you.
Tax Obligations
Set aside 25-30% of every payment for taxes in a separate savings account
As a freelancer, you pay income tax plus 15.3% self-employment tax (Social Security and Medicare combined). Transfer 25-30% of every client payment to a dedicated tax savings account the day you receive it. Spending tax money is the most common freelancer financial crisis.
Make quarterly estimated tax payments to the IRS on schedule
Due dates: April 15, June 15, September 15, and January 15. If you owe more than $1,000 in taxes for the year and have not made quarterly payments, you will owe a penalty on top of the tax bill. Use Form 1040-ES to calculate your quarterly amount. Set calendar reminders 2 weeks before each deadline.
Learn which expenses are tax-deductible for your freelance business
Common deductions: home office (dedicated space), internet (business percentage), software and tools, professional development, travel for client work, health insurance premiums, and retirement contributions. These deductions typically reduce a freelancer's taxable income by $10,000-$25,000 per year.
Consider hiring a CPA who specializes in self-employment taxes
A good CPA costs $300-$800 per year for freelance tax filing and typically saves you 2-3x their fee in deductions you would miss. They also handle quarterly payment calculations and help you avoid IRS penalties. The investment pays for itself from year one.
Frequently Asked Questions
How much money should I save before going freelance?
Save 6-12 months of living expenses plus 3 months of estimated business costs before leaving your full-time job. The median time to reach a sustainable freelance income is 4-8 months. Having $20,000-$40,000 in savings (depending on your cost of living) eliminates the desperation that leads to underpricing and accepting misaligned clients during the critical first year.
Should I form an LLC as a freelancer?
An LLC is recommended once your freelance income exceeds $10,000-$15,000 annually — the $50-$500 formation cost is minimal compared to the personal liability protection. Operating as an LLC also opens business banking, credit building, and tax election options (S-Corp election at $80K+ saves 5-10% in self-employment taxes). Many clients require an LLC or business entity before signing contracts above $5,000.
How do I set my freelance rates?
Calculate your minimum viable rate: (annual expenses + taxes + retirement savings + health insurance) divided by 1,200 billable hours (the realistic annual maximum for solo freelancers). This typically yields rates 2-3x higher than the hourly equivalent of your previous salary. Shift to project-based or value-based pricing as soon as possible — clients care about outcomes, not hours, and flat project fees protect your income as you become more efficient.
How do freelancers get health insurance?
The ACA marketplace (healthcare.gov) is the most common source, with subsidies available for individuals earning under $58,320 in 2026. Monthly premiums range from $200-$600 for individuals after subsidies, depending on your state and plan tier. Professional associations (Freelancers Union, AIGA, National Press Club) offer group plans in some states. Health sharing ministries ($200-$400/month) are a lower-cost alternative but are not technically insurance and may not cover pre-existing conditions.
What taxes do freelancers pay that employees do not?
The self-employment tax (15.3% on net income — covering both the employer and employee portions of Social Security and Medicare) is the biggest new expense. Freelancers must also make quarterly estimated tax payments (April 15, June 15, September 15, January 15) or face underpayment penalties. Deductible expenses (home office, equipment, software, health insurance premiums, retirement contributions, mileage) typically offset 20-35% of gross income for active freelancers.