Being self-employed is the best way to be in charge of your career, and your life. You will have the freedom of being your own boss. As they say, with freedom comes responsibility. Especially legal responsibility. Being a self-employed entrepreneur or a businessperson is no easy walk in the park. There are serious tax and legal implications that you should worry about.
Most self-employed individuals are only concerned about the initial legal burden of starting their business. You may be worried about the taxes and obtaining a license from the state to conduct business. However, there are many other factors to worry about. For example, have you thought about what would happen if you were sued? What if you have to default on a personal loan? These are the types of questions you should ask before starting your business.
Here is a list of legal matters that self-employed individuals don’t always consider, but really should:
Licensing Intellectual Property and Web Content
If you invent something, what would be the first thing you do? You would license your invention and obtain a patent for your idea, of course. If you are going to run a self-employed business, you must worry about intellectual property law in a similar manner. Mainly, there are two major considerations that you should take into account: owning copyright for the material you produce, and obtaining licenses for the material you distribute.
If you are a writer for example, you would most likely produce material for other people. When you do so, you must think carefully about whether you want to be the copyright owner. If you are ghostwriting, that could be difficult. Think of it this way: would you be comfortable with a third-party redistributing content you have written? If not, you should discuss the matter with the client who should own the written material.
On the other hand, you must also worry about the content you distribute that other people have produced. Be very careful about publishing photos and videos on your site from other sources. Such content should clearly be authorized for commercial distribution without prior permission from the original author. It is very easy for a business to get embroiled in a nasty court case because of a single picture posted online.
Getting Yourself Bankruptcy Protection
Bankruptcy may be the last thing on your mind when you start a new business. However, you must prepare yourself for all contingencies as a proper business owner. Filing for bankruptcy when you are self-employed can be a bit tricky. You must have your business and personal finances clearly separated to convince a court that it is your business, not you personally, that is going bankrupt. When you are self-employed, it is understandably difficult to separate certain expenses. But, you must be meticulous in this regard and carefully maintain the books. You must absolutely have bankruptcy protection for your self-employed venture. Do read books and articles about self-employment and business bankruptcy to learn more.
Separating Self-Employment Tax, Business Tax, and Income Tax
Tax law in the United States is notoriously complex. You must have a clear understanding of the taxes that you have to pay and the ones you can get deducted. The taxes you have to pay will depend on what sort of self-employed person you are. You are legally self-employed if you are an individual running his or her own business, a partner in such a business, a part-timer, or an independent contractor. If you are running a one-person show, be aware that you have to file self-employed business tax returns in addition to income taxes. Are you being taxed double for the same thing? In a way, yes.
The SE tax you pay goes toward your Social Security and Medicare. This is the same you would pay if you were under someone else’s employment. Income tax is the regular income tax that almost all wage earners must pay. As a self-employed person, there will be certain tax deductions you would be eligible for as well. For example, if you run your business from your home, you can get a deduction for that.
Business and Divorce
Do you have a spouse with whom you hold a joint bank account? Have you wondered what would happen to your business if you two were to get divorced? Yes, it’s probably not something you want to think about. Remember, you are running a business here. Do not let your business expenses get too tangled with personal expenses, especially in a joint account. This can present serious problems in a divorce suit in the absence of a prenuptial agreement. You should obtain legal counsel with regards to keeping your family and business finances separate in a manner that a third-party cannot legally challenge. Hire a lawyer from a firm like Canterbury Law Group, where the counselors specialize in both commercial and marriage law.
Malpractice Insurance, and Other Profession-Specific Insurance
Certain self-employed professionals should have specific types of insurance relevant to the industry. For example, if you are a dentist who has her own clinic, the clinic should have malpractice insurance. There’s a lot you could lose in case your self-employed business is sued. If you run your company from a home office, you could lose your house with a lawsuit. Therefore, it’s paramount that you have proper insurance coverage against lawsuits as well as other hazards, such as fires.
It can be perplexing to wrap your head around all the legalities involved with running a business. When you are self-employed, business and personal have a tendency to mix, complicating things even further. Therefore, pay close attention to the above mentioned issues. Hire a good lawyer, and make sure you and your business are protected under all circumstances.