Transforming Freelance Creative Work into a Thriving Small Business
Embarking on the journey from freelance gigs to a structured small business is an exciting prospect. For those involved in creative fields like graphic design, web development, and video production, this transition can bring significant advantages, particularly in terms of tax benefits and financial management.
While working as a salaried professional, many creatives moonlight to pursue their passions, occasionally bringing in a modest income. In my own experience, supplemental freelance work has often resulted in a few thousand dollars annually. However, there was a standout year when I earned $10,000, only to find myself paying nearly a third of that in taxes the following year due to the 1099 filing and limited deductions for operating expenses.
Recently, an enticing opportunity to work with a client on a recurring basis has presented itself—a $5,000 monthly retainer for a period of nine months. This potential income has prompted a reassessment of my freelance operations. Additionally, I’ve contemplated upgrading my equipment—a new camera, computer, and lighting are on the list. Such investments could potentially be written off, offering further tax benefits.
With my home base in Michigan and clients scattered across various states, the flexibility to establish a business in any state is an option worth considering. The question that naturally arises is whether formalizing my freelance work into an LLC or another business entity is the right move, and if so, which state would offer the most advantageous conditions for such a venture.
Making the leap to formalize your side hustle involves careful consideration of both current income and future growth potential. Consulting with a tax professional or business advisor could provide clarity and guide you in making an informed decision tailored to your specific circumstances.
