Freelancing vs starting a small business - advice needed
 

Hi. I'd love some advice. I'm about to start a small freelance project for a UK client launching a product in the States. They want to pay me in GBP which i don't mind as that gives me a little bit of spending money when i go back to the UK in the summer. Do you think that's a bad idea tax-wise (they will pay me in $$ if i want)? Will it unnecessarily over-complicate my tax returns in the US and UK?

Also, are there any tax advantages to starting my own business as opposed to me freelancing? I won't be earning huge sums (around $1k per month) to start but hopefully i'll be able to grow my client base over time. TIA

Re: Freelancing vs starting a small business - advice needed
 

California... $800 tax off the bat (due April) if you form a company - not absolutely necessary but I think it can help protected against personal assets if the business gets into any trouble (financial/criminal). If you're working in the US then you would probably get the UK company to pay without withholding anything (ie tax/NI), and you declare the income as US income, and tax appropriately. This is what my accountant said was right for me but I don't know the specifics of your situation so you should seek advice.

As for whether it'd be worth it... well, you can deduct genuine business expenses from your taxes. For example, if you have a dedicated home office then you can deduct a portion of your utility bills and other stuff, plus business trips (half the value on meals and entertainment IIRC), business miles in a personal car (keep logs), upkeep of office...

Lots of factors to consider!

(But if you leave the money in the UK and spend it while over there, then that's out of my depth I'm afraid)

Re: Freelancing vs starting a small business - advice needed
 

Wat Geoff said...:thumbup:

Re: Freelancing vs starting a small business - advice needed
 

It doesn't matter if the companies pay you in GDP or USD since the IRS publishes a table to convert foreign currencies to USD that you possibly may be able to use or if your income is not spread evenly throughout the year, you then should keep track of the exchange rates on the day you are paid and use that toe determine income in USD.

Yearly Average Currency Exchange Rates

Re: Freelancing vs starting a small business - advice needed
 

Get can setup you business as a sole proprietor, a LLC, or a S Corp that is taxed like an individual. Little has to be done to setup as a sole proprietor except possibly get a local business license (often people don't bother if working from home and I also didn't have a business license when I did some part time contracting at my home) but you have unlimited personal liability if someone sues the business.

A LLC gives you limited liability to protect you personal assets from lawsuits and creditors but in most cases, your company will be non credit worthy and you'll likely have to personally sign for anything you purchase. You can probably use LegalZoom to setup you own LLC.

Pricing Packages for Creating an LLC | LegalZoom.com

A S Corp that can be taxed like an individual can also be setup but normally there isn't an advantage over a LLC for most small businesses and it cost more with all the fees.

Incorporation Services - How to Incorporate a Business - Form an S Corporation or C Corporation | LegalZoom

A C Corp is for public companies but they pay corporate taxes to get tax benefits that a S Corp or a LLC normally doesn't get. However you normally need high priced lawyers, accountants, and a significant number of employees to make it financially beneficial.

Re: Freelancing vs starting a small business - advice needed
 

I used My New Company who were very helpful and quick with answers to questions. Michael mentioned LegalZoom which does seem to have a good reputation too.

Correction to my earlier jumbled post: the home office deductions were one thing; the business trips was another that does not matter if you have a home office or not.

Re: Freelancing vs starting a small business - advice needed
 

Thanks all. I've been waiting to hear back re fees and contract etc before i make a decision as to what I do. Thank you for the useful links/advice.