Self-employed workers and freelancers now have expanded access to major medical health insurance plans. In a typical year, the Open Enrollment period for individual plans is generally a 6-week period that ends on December 15th. As a result of the pandemic, however, the enrollment date for 2021 plans has been extended twice – first to May 15th, and most recently to August 15th. As part of the American Rescue Plan, President Biden just announced the second Special Enrollment extension so that individuals, including those who are self-employed, can make sure they are covering themselves and their dependents.
Last week, President Biden signed the $1.9 trillion American Rescue Plan into law. The Plan has several benefits that can help freelancers. One of the biggest benefits is the payment of an additional cash stimulus to qualified individuals and families. If you reported less than $75,000 ($150,000 if you filed jointly) on your last tax return, you’ll receive a $1,400 stimulus payment per person, including children and dependents. This means an eligible family of 4 would receive $5,600 – this is a lot of money! (Use the IRS’ Get My Payment Tool to see when and how you will receive your payment if you haven’t already.)
- A Sole Proprietorship is a Legal Entity. If you learn anything in this blog post, remember this: a sole proprietorship is not a legal entity. It refers to a person who owns a business and is personally responsible for its debts.
- Sole Proprietors Have to Incorporate. You do not have to take any formal action to form a sole proprietorship. As long as you are the only owner, this status automatically comes from your business activities. You still may need certain licenses and permits depending on the type of business.
- Sole Proprietors Don’t Have to Pay Taxes. Because you and your business are one and the same, sole proprietors pay personal income tax on profits earned from the business. Taxpayers are generally required to pay at least 90% of their taxes through the year or make estimated tax payments. In addition, sole proprietors are responsible for paying self-employment taxes, which is a Social Security and Medicare tax.
- A DBA Protects Sole Proprietors From Personal Liability. Whether you use your own name or create a fictious name (also known as an assumed name, trade name, or DBA name, short for "doing business as"), there is no legal separation between you and your business. Sole proprietors can be held personally liable for the debts and obligations of the business and for their employees’ actions.
- Banks and Clients Don’t Care. Think about how you decide to work with a business. You want to make sure it’s legit before you sign a contact, right? That’s why banks typically require that businesses incorporate before they’ll lend them money. Failing to incorporate your business may also impact whether customers or clients want to work with you. Sole proprietorships can seem unprofessional or flaky.
A sole proprietorship may be the easiest type of business to establish, but it’s also the easiest business to fail. It offers no protection from personal liability, so you can be sued and held personally responsible for the business’ debts. Moreover, it’s very difficult to get loans and grants. If you have a freelance business – whether it’s your side hustle or main hustle – you should incorporate today. Most freelance businesses benefit from a Limited Liability Company (LLC) structure. Are you ready to form your business? Start now: SoleVenture has your back.
As we begin a new year, freelancers have a fresh start to implement healthy financial practices. This article shares six simple strategies that can help you successfully manage your freelancing finances and build your business.
If you are a freelancer or self-employed professional, you could be eligible for a number of money-saving tax deductions that can boost your bottom line. This article is an overview of 10 potential tax deductions to keep in mind as you prepare for tax season. (As with almost anything tax-related, there will be some nuance regarding what can be written off and for how much, so be sure to conduct additional research or consult with an accountant as needed.)