Making Your Freelance Business Pay…Literally

This post is sponsored by Outright — Your Livelihood, Right Now.  Getting your taxes right with free bookkeeping.

There are plenty of ways to handle your freelance income, but once you start getting out of the 30K range it might be time to start thinking seriously about structuring your cash flow more like a business rather than as something you earn as an individual. One of the oldest maxims in the freelance book is to treat your freelance business AS a business; paying yourself a salary is a very good step in that direction.

Once you start making this kind of money as a freelancer, chances are you’re already being tempted to incorporate or set up an LLC–if you’re thinking along these lines it’s even more important to consider giving yourself a set salary even–if you haven’t drawn up the paperwork for the LLC or S-Corp.

There are two good reasons to do this, aside from goal setting and keeping yourself motivated. For starters, you’ll have a much cleaner paper trail between your business expenses, your pay, and other deductions. Anything you do that makes it clear to the IRS exactly how and where you paid expenses for your business is a good thing.


The second reason to pay yourself a salary even before you file your LLC or S-Corp papers? Discipline. Depending on which formal, legal arrangement you choose you may be required by law to pay a salary to yourself. S-Corp filers have a whole set of payroll concerns to deal with and while we won’t argue the merits of choosing an LLC over an S-Corp (or vice-versa) here, suffice it to say that getting in the habit of paying yourself as an employee is definitely a good thing if you want to go the S-Corp route.

Giving yourself a set paycheck also allows you to properly budget for the future. How much are you able to dedicate towards other tax-deductible expenses such as travel, equipment replacement, and insurance? Without a fixed paycheck to factor into your budget, deciding on those amounts may be more like guesswork than careful planning–and no serious business survives long on guessing.

This post on the business of freelancing is sponsored by Outright — Your Livelihood, Right Now.  Getting your taxes right with free bookkeeping.