Sunday Mailbag

Q: What are the first, and most crucial, steps in setting yourself up as a freelancer? What bookkeeping measures or programs do you suggest? How difficult is dealing with taxes? If you were starting out today, what would your “to-do” list look like? Thanks!

A: The absolutely most important first step is setting up your identity. What I mean by that is creating a professional image though the organization and presentation of your work and yourself as an illustrator. All the peripheral stuff like book keeping, taxes, etc. are just paperwork. They are important in their own right, but only if you are getting work as a freelancer. Therefore the most important thing is getting the work. Still, you were specific about those things so I will address them.

If I were just starting out today, I would first take a good look at my work and try to determine what type of client I was likely to appeal to. Then I would create a logo and visual identity to reflect that. Whether my work was whimsical, goofy, dynamic, classic, realistic, moody, dark, etc… I’d design a logo or some kind of image to represent that identity. In these days of cheap laser and inkjet printers, I’d use that logo and visual theme for my letterhead, business cards, envelopes and invoices.

My next step would be to get my work out there. The best thing is of course a website. You need a good web presence these days, and it is the ultimate easy access portfolio. Having a sharp, easy to navigate and attractive site is important, but it doesn’t need to be a flashy, heavily programed Flash site either. Well designed is key.

Next I would invest in an ad in a source book like Serbin’s Directory of Illustration. This is a gamble money-wise but it’s a wise move when first starting out. It will likely land you a few jobs and might even pay for itself the first year (probably not), but the tear sheets you get serve well as a direct mailing piece, so you combine those costs into one which makes it easier to bear. Also, a well designed source book page gives you some instant credibility.

Next is the direct mailing assault. Go to your local large bookstore and ransack the magazine racks for magazines you think will want to buy your type of work. If you draw sports illustrations, pick sports magazines, etc. Get the mailing address and art director’s name from the masthead. Plan on a quarterly mailing to the magazines you really think would be perfect for your style of work. Follow up with a phone call after mailing number two or three, if you can find the number. Avoid contacting them through e-mail.

Sit back and wait for the phone to ring.

Now the boring stuff:

It would be a good idea to file for a federal employer identification number (F.E.I.N.), especially if you want to call your business something other than your name, like “Bigtime Illustration”. An F.E.I.N. is free to get, Here are the instructions. This gives your business it’s own tax ID number, which is like it’s social security number. It’s a good, legitimate way to register yourself as a business with the government.

You also need to register with your state for a state tax ID number. You may be required to collect sales tax on illustration work sold to in-state clients, but that depends on your state laws. Some staes require you to register a fictious business names like “Bigtime Illustration” also.

There are basically two ways for you to be a business entity, either a sole proprietorship or a corporation (S-Corporation actually). A sole proprietorship is being self employed, where you’re personal legal entity is the business itself. An S-Corp is a type of corporation where the business itself is the legal entity. The easiest of the two is the sole proprietorship, where you simply have to file two extra yearly tax forms, a Schedule C (business profit and loss) and a Schedule SE (Self employment tax, basically social security). As an S-Corp, you pay yourself a salary and have to file the appropriate forms, pay withholding, etc. Lots of paperwork, let alone the actual incorporation and other legal rules to be adhered to. The main benefit to incorporation is avoiding some Social Security taxes, and it all depends on your income level. If you earn over a net of $50,000 a year as a freelancer, it would probably be wise to incorporate. You can then salary yourself $20,000 a year, and pay only about $3,100 in social security taxes while the other $30,000 is “dividend income” and only subject to income tax. If you made that same $50,000 as a sole proprietor, you’ end up paying $7,650 in social security taxes. That saves you $3, 550 a year. The more disaprity between what you actually make and what you pay yourself as an employee of your corporation, the more you save. There are no hard and fats rules as to what percentage of net revenues you need to pay yourself in salary before the IRS cries “foul”, but if you net $250,000 and pay yourself $5,000 a year you will get to know your IRS auditor very well. However, being an S-corp has a few costs like a yearly fee with your state (usually around $100) and a lot of paperwork headaches, plus some costs to file a corporate tax return. Sometimes the extra tax saving is not worth it.

As for bookkeeping, a simple program like Money or Quicken will easily do the job.

Thanks to Phil Fountain for the question. If you have a question you want answered for the mailbag about cartooning, illustration, MAD Magazine, caricature or similar, e-mail me and I’ll try and answer it here!