Starting a Freelance Business: First Client to Taxes
Launch a freelance business from scratch with a structured plan. Covers defining your services, finding your first clients, setting rates, creating contracts, managing invoices, handling taxes, and scaling beyond solo work.
Choose a specific service offering based on your skills and market demand
Generalists struggle to stand out. Pick a specific skill (web design, copywriting, bookkeeping, social media management, video editing) and a target client type (small businesses, SaaS companies, restaurants, real estate agents). High-demand freelance skills in 2026: web development (50-150 USD per hour), UX/UI design (60-125 USD per hour), content writing (30-100 USD per hour), bookkeeping (35-75 USD per hour), and social media management (25-75 USD per hour). You can expand your services later, but starting focused makes marketing and pricing easier.
Set your initial rates based on market research and your experience level
Research rates on Glassdoor, Upwork, and freelancer communities for your skill and experience level. Beginners typically charge 50-70% of the going rate and increase as they build a portfolio. Hourly billing is simple but caps your income. Project-based pricing (500 USD for a website homepage, 200 USD per blog post) lets you earn more as you get faster. Value-based pricing (5,000 USD for a website that generates leads) is the most profitable but requires experience to justify. Start with hourly or project rates and transition to value-based as you gain confidence.
Create a simple portfolio showing 3-5 examples of your work
No previous client work? Create spec projects: redesign an existing website, write sample blog posts for a fictional company, or build a bookkeeping case study with dummy data. A portfolio needs 3-5 strong pieces, not 20 mediocre ones. Host it on a simple website (Squarespace at 16 USD per month, Carrd at 19 USD per year, or a free GitHub Pages site for developers). Include a brief description of each project, the problem you solved, and the result. A visible portfolio converts 3-5 times more prospects than a resume alone.
Find Your First Clients
Start with your existing network: personal contacts, former colleagues, and local businesses
Your first 3-5 clients almost always come from people who already know and trust you. Send a direct message to 50 contacts: I have started freelancing as a [service]. If you know anyone who needs [specific outcome], I would love an introduction. Offer your first 1-2 projects at a reduced rate (not free) to build testimonials and case studies. Local businesses (dentists, restaurants, boutiques) often need freelance help and prefer working with someone local. Walk in, ask for the owner, and offer a specific service.
Set up profiles on 2-3 freelance platforms to supplement inbound leads
Top platforms by category: Upwork (general, largest marketplace), Fiverr (productized services), Toptal (vetted top 3% of freelancers, higher rates), 99designs (designers), and Contently (writers). Optimize your profile: professional photo, specific headline (WordPress Developer for Small Businesses, not Freelancer), and 3-5 portfolio samples. For Upwork, submit 5-10 personalized proposals per week. Expect a 10-20% response rate and a 5-10% hire rate initially. Platform clients often become direct clients after the first project.
Create a simple proposal and contract template for every engagement
A proposal template includes: project scope (exactly what you will deliver), timeline (start date, milestones, delivery date), price (total or hourly estimate), payment terms (50% upfront, 50% on completion is standard), and revision policy (2 rounds of revisions included). A contract protects both parties: use a template from AND CO (free), Bonsai (19 USD per month), or have a lawyer review one (200-500 USD). Never start work without a signed agreement and deposit. Scope creep (clients adding work beyond the original agreement) is the biggest profitability killer for freelancers.
Business Setup and Legal
Register as a sole proprietor or form an LLC
Sole proprietorship: no registration needed in most states (you are automatically one when you start freelancing). Simple but offers no personal liability protection. LLC: costs 50-500 USD to form depending on state, takes 1-3 weeks, and separates your personal and business assets. An LLC is recommended once you earn more than 5,000 USD per year or work with clients who could potentially sue. Form an LLC through your state's Secretary of State website or use a service like LegalZoom (79-329 USD) or Northwest Registered Agent (39 USD plus state fees).
Open a separate business bank account and track every expense
Open a free business checking account (Chase, Mercury, Novo) to keep personal and business finances completely separate. This is critical for tax time and if you are ever audited. Common deductible expenses: home office (dedicated space), computer and equipment, software subscriptions, internet (business percentage), professional development, coworking space, travel for client meetings, and health insurance premiums. Track expenses with a tool (Wave: free, QuickBooks Self-Employed: 15 USD per month) or a simple spreadsheet. Save every receipt.
Get business insurance if you provide professional services or advice
Professional liability insurance (errors and omissions) protects you if a client claims your work caused them financial harm. Cost: 300-1,000 USD per year for most freelancers. General liability insurance covers bodily injury or property damage (relevant if you visit client locations). Business owner's policies (BOP) bundle both for 500-1,500 USD per year. Insurance becomes important once you work with larger clients or sign contracts that require it. Providers: Hiscox, Next Insurance, and Hartford offer freelancer-specific policies.
Taxes and Finances
Set aside 25-30% of every payment for taxes
As a freelancer, you pay self-employment tax (15.3% for Social Security and Medicare) plus federal income tax (10-37% depending on bracket) plus state income tax (0-13% depending on state). Total tax burden typically ranges from 25-40% of net income. Transfer 25-30% of every payment into a separate savings account immediately. This prevents the shock of a large tax bill and ensures you have funds available for quarterly estimated payments.
Pay quarterly estimated taxes to avoid penalties
Freelancers must pay estimated taxes four times per year: April 15, June 15, September 15, and January 15. Use IRS Form 1040-ES to calculate payments. The safe harbor rule: pay at least 100% of last year's tax liability (110% if AGI exceeded 150,000 USD) in quarterly installments to avoid underpayment penalties. If this is your first year freelancing, estimate based on projected income. QuickBooks Self-Employed and TurboTax Self-Employed calculate quarterly payments automatically. Missing quarterly payments results in a 3-8% annualized penalty.
Track business mileage and home office deductions year-round
The IRS mileage rate for 2026 is approximately 0.67 USD per mile for business driving (client meetings, coworking, office supply runs). Track every trip using a mileage app (MileIQ, Everlance). The home office deduction requires a dedicated space used exclusively for business. The simplified method: 5 USD per square foot up to 300 square feet (1,500 USD maximum deduction). The regular method calculates the percentage of your home used for business and applies it to rent, utilities, and insurance. This guide is informational only, not financial or legal advice.
Frequently Asked Questions
How much can I earn as a freelancer?
Freelance income varies widely by skill, experience, and hours worked. Median US freelance incomes by field: web development (75,000-120,000 USD), graphic design (50,000-85,000 USD), writing and content (40,000-80,000 USD), bookkeeping (45,000-70,000 USD), and social media management (40,000-65,000 USD). Part-time freelancers (15-20 hours per week) typically earn 25,000-50,000 USD. Full-time freelancers who specialize and charge premium rates can exceed corporate salaries. Income is inconsistent at first, stabilizing after 6-12 months of consistent client acquisition.
How do I handle health insurance as a freelancer?
Options: ACA marketplace plans (HealthCare.gov, premiums vary by income and location, subsidies available below 400% of the federal poverty level), spouse's employer plan (often the cheapest option), health sharing ministries (Medishare, Samaritan: 200-500 USD per month, not technically insurance), short-term health plans (cheaper but limited coverage), and freelancer associations that offer group rates. ACA premiums are tax-deductible for self-employed individuals. Budget 300-800 USD per month for individual health insurance depending on your age, location, and plan type.
Should I freelance full-time or start as a side hustle?
Starting as a side hustle while employed is the lowest-risk approach. Build your client base, portfolio, and savings (3-6 months of expenses) before quitting your full-time job. The transition point: when freelance income consistently covers your minimum monthly expenses for 3+ consecutive months. Going full-time immediately works if you have 6+ months of savings, a strong existing network, and high demand for your skill. The average freelancer takes 3-6 months to replace their full-time income.
How do I deal with clients who do not pay?
Prevention: always require a signed contract with payment terms and collect 25-50% upfront before starting work. For late payments: send a polite reminder the day payment is due, a firm follow-up at 7 days, and a final notice at 14 days with a late fee (1.5% per month is standard). For non-payment: send a formal demand letter, report to credit bureaus if the amount exceeds 500 USD, or file in small claims court (filing fee: 30-75 USD, no lawyer needed for amounts under 5,000-10,000 USD depending on state). Invoice factoring services advance payment for a fee if cash flow is critical.