5 Ways Freelancers Must Protect Themselves When Doing Business

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Freelancing is a dream come true for many working professionals: you’re free to take days off, work when you want, and have more time to spend with loved ones. However, many self-employed hustlers face certain hurdles that could cost them big time if they’re not careful. Ensure that you’re protected against legal disputes with these 5 business practices.

1. Write a Contract

To ensure you receive the right payment, mitigate risk and stay legally compliant, you should always draft a contract no matter how trustworthy your client seems. By creating a contract your clients have to sign, you both become legally bound to one another. If anyone in this agreement dismisses, changes the terms, or ceases contact, you can take them to court.

Contracts have three essential components: agreement, consideration, and intention. With specific terms, the contract becomes legal, but it can be difficult to write a proper document without a lawyer. You can use the freelance contract template from Bonsai to help you get started. Just fill in the blanks in the form, then ask a lawyer to quickly look over the contract for clarification. 

2. Purchase Insurance

In the United States, your employer typically gives you health coverage in exchange for a percentage of your paycheck. However, when you’re your own employee and boss, you’ll have to pay out of pocket for coverage unless you purchase health insurance. It’s important to stay covered by signing up for health, dental, and eyewear coverage if you wear glasses.

It’s also a good idea to purchase life insurance, disability insurance, critical illness insurance, and extended health care if you have pre-existing health conditions. Depending on the nature of your business, you may have to acquire liability insurance as well. It’s in your best interest to be as protected as possible, so you don’t run the risk of losing your clients due to poor health.

3. Learn to File Self-Employment Taxes

As a self-employed person, the IRS in the United States expects you to file an annual return and pay estimated taxes quarterly. You must pay self-employment tax and income tax, with self-employment tax acts similar to Social Security and Medicare taxes. The only significant difference is making quarterly payments, and you can file them via an EFTPS.

Freelancers can also save a lot in taxes if they understand how to deduct their expenses. There are plenty of ways to save money quarterly by keeping your receipts and calculating your business costs. For example, self-employed people can take a percentage of their workspace, phone use, internet use, business meals, and business travel tax-free. 

4. Intellectual Property Rights

Anything you make for a client could be considered “work made for hire,” which defaults the copyright ownership to the client. However, that isn’t always the case. If you wrote in your contract that you own everything you make and they sign it, you remain the owner. If you want to use your intellectual property again, be sure to protect it with legal means.

Your clients will likely ask you to sign their own contract before you work with them. If that’s the case, it’s in your best interest to thoroughly read the document front to back. Once you sign the contract, it’s challenging to renegotiate their terms. Negotiation should happen before you put pen to paper. Don’t be afraid to ask clarifying questions with your client.

5. Become a Business Entity

Once you start generating more income, it may be necessary to become a business entity. There are multiple positives to switching from a sole freelancer to running and classifying yourself as a full-blown business. For one, you can apply for business loans, which could make it easier for you to scale your company to become more profitable.

Businesses also have the privilege of certain tax benefits and owning their own stocks. Transitioning to a business entity isn’t tricky, and you can pay less in taxes per year by filling as an employee instead of self-employed. Above all else, you’ll have more legal protections, and your customers will take you more seriously.

About Mohit Tater

Mohit is the co-founder and editor of Entrepreneurship Life, a place where entrepreneurs, start-ups, and business owners can find wide ranging information, advice, resources, and tools for starting, running, and growing their businesses.