How to Start Self Employment

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Self employment offers several benefits, including allowing you set your own hours, lower transportation expenses and influence your income more directly. Self-employment also offers its own set of challenges--taxes and record keeping. Organizations like the U.S. Small Business Administration and the National Association for the Self-Employed provide support to professionals who seek to start their own company. Understanding the steps required to legally enter self-employment can increase your chances of earning a living working for yourself.

Decide on the type of business that you want to operate (e.g. franchise, independent contractor). Create a name for your business and contact the Internal Revenue Service to receive an Employer Identification Number. Indicate whether your business is a sole proprietorship, joint partnership, general partnership or limited partnership. If you are creating a sole proprietorship, you might be able to use your Social Security number as the EIN. It can take up to two weeks to receive your EIN from the IRS.

Register with your state’s IRS department. If your business requires you to collect sales or/and use tax (e.g. pizza shop, bookstore) you will need to file monthly, quarterly or bi-annual sales and use tax. Each state has different guidelines on when these business taxes are due. Contact your state’s Department of Revenue office and get a list of the specific registration forms you are required to complete to file the taxes.

Secure local and state licenses and permits required to operate your business. For example, if you are operating a restaurant you might need a liquor license or a sign permit to advertise the name of your business outside the building.

Work with your bank and other financial institutions to secure funding for your business. You can also check with the Small Business Administration and the National Association for the Self-Employed to locate low interest loans. Create a business plan before you apply for a business loan as most banks require you to submit a business plan before they will provide you funding. Independent contractors are encouraged to have five to six months of income saved so that they can continue to meet living expenses while they grow their clientele and build revenues.

Attain business insurance if you are going to be working outside your home or providing services (e.g. massages) or products (e.g. baked goods) to customers. General liability insurance covers the costs of accident, negligence, libel, property damage and slander. Product liability insurance protects you in the event that products you sell cause injury to someone. Professional liability insurance protects you against charges of malpractice, errors and negligence.

Understand federal, state and local tax requirements. Self-employed workers must pay Social Security and Medicare taxes. As of November 2010, the Social Security tax for self-employed workers was 12.4 percent and Medicare taxes were at 2.9 percent. You must complete Form 1040-ES to file quarterly estimated self-employment taxes.

Create a schedule that outlines the days and hours of the week that you will work. This will help you to remain organized and on track financially. Avoid gazing out the window or checking emails for hours a day. Build a home office with desk, chair, computer, printer, stapler, filing cabinets, etc. Keep receipts and other records organized so that you can locate them when you need them.

Market your products and services to prospective customers and clients. Join professional associations and network with other business owners and independent contractors. Attend trade shows and marketing training programs and take steps (e.g. direct mail, blogging on social networks, radio interviews) to grow your bottom line.

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About the Author

Rhonda Campbell is an entrepreneur, radio host and author. She has more than 17 years of business, human resources and project management experience and decades of book, newspaper, magazine, radio and business writing experience. Her works have appeared in leading periodicals like "Madame Noire," "Halogen TV," "The Network Journal," "Essence," "Your Church Magazine," "The Trenton Times," "Pittsburgh Quarterly" and "New Citizens Press."

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