How to Become a Self-Employed Contractor

Do you dream of being self-employed? If so, you’re not alone. According to the U.S. Bureau of Labor Statistics, approximately 15 million people were self-employed in 2015. That’s a little over 10% of the work force.

Thanks to the internet and other technology, it’s easier than ever to become a contractor. That doesn’t mean that you should try without some planning. Here, we’ll talk about the steps you need to take if you want to become a self-employed contractor.

Set Up a Business Entity

The first thing you need to think about is setting up a business entity. You have several options, each with its own pros and cons:

  1. Register as a sole proprietor under your name, and then choose a fictitious business name to use for your business.
  2. Get registered as a Limited Liability Company
  3. Register as a corporation

If you decide to register as a sole proprietor, you’ll have to do that on the state level. (Secretaries of State handle business registrations.) Then, you’ll have to choose a fictitious business name to register on the county level. You should search the name you choose first to make sure nobody else is using it.

It’s important to register a business entity. When you do, you can make a clear line between your personal finances and your business finances. It becomes easy to deduct business expenses to reduce your tax burden. It also looks more professional than simply doing business under your own name.

Deal with Your Finances

The next thing you need to do to start working as a self-employed contractor is to figure out the financial aspects of owning a business. When you work for someone else, they have the responsibility of paying half of your employment taxes. As a self-employed contractor, you are responsible for the entire amount.

You also need to be aware that your responsibility is to pay your quarterly taxes in advance. You’ll have to estimate your quarterly income and pay taxes based on that amount.

It’s a good idea to set up a business accounting system. You’ll need to keep careful track of every penny you spend that’s related to your business. That includes things like:

  • Office supplies and equipment
  • Gas and transportation
  • Entertaining clients
  • Rent (even if you work from home, you may be able to deduct part of your rent or mortgage if you have a dedicated office space in your home)

It’s a good idea to set up a business checking account so that you don’t have to guess which expenses are business-related.

Obtain Insurance and Licenses

The final thing you need to do is to get any business licenses that are necessary and buy insurance. Licensing isn’t required for everything. For example, if you plan on working as a freelance writer, you don’t need any special license to do business. However, if you plan on working in construction, you will need a license. Check with your state if you’re not sure.

Insurance is a big issue for the self-employed. You’ll be able to get health insurance under the Affordable Care Act, which you can do by visiting

Depending on your business, you may also want to obtain liability insurance to protect you in the event that someone sues you. Here again, if you’re not sure what you need you should first check with your state and then talk to an insurance professional.


Going into business for yourself can be an exhilarating thing to do. To maximize your chances of success, make sure to follow all of the steps outlined here. If you do, you can be ready to say goodbye to your day job for good.  When you’re all set up, check out this other post to find out more about contractor storage.

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