Need some tips on how to be a freelance developer

September 17, 2008 4:11 PM

Now that I'm starting to do more part-time freelance software development, what kinds of things should I be considering?

A few months ago, a friend of mine was approached to do some custom software development, but at the time he was unable to take on any more projects. He referred the guy to me instead and I did the job, which was well received. That led to another job, which in turn has led to a few more in the pipeline and a few other clients showing interest in hiring me. This is all good: I'm a full-time grad student, with piles of student loans, so any spare cash I can make on the side is great.

So far I've made relatively little money doing this, but if I'm going to be making any supplemental income from freelancing, I'd like to figure out what hoops I have to jump through (legalities, taxes, etc) to be legit. Googling has found me advice that all seems geared towards people trying to do small business as a career, but that's NOT what I'm shooting for right now - just doing the occasional bit on the side. Before I go spending tons of cash (which is in short supply right now) talking to a lawyer and/or CPA for an income stream that might be pretty small, I'd like to be sure that it's worth it.

Specifically,
1. Am I supposed to be starting a company for this, or can I just do business under my own name?
2. What am I supposed to be doing about taxes and the like?
3. Anybody have any idea what custom software development is worth these days? I'm a few years shy of a PhD in computer science, with 15+ years of independent and corporate software development experience, and the work I've been doing (iPhone app development) is still fairly niche, so it's got to be worth something - but I'm having a very hard time finding information on what I'm supposed to be charging people.
4. Are there things I haven't even thought of yet?

Some vague questions, I know, but if anybody's got any pointers I'd love to hear them.

posted by captainawesome to work & money (5 comments total)

1. Just be a "Self-proprietor." I freelance for a living and I haven't gone any farther than that. (Well actually, I did register a business name, but I'm still just a self proprietor, not an LLC or a corporation or anything like that.) Unless you're worried about being sued, in which case, incorporate.

2. Technically, you should pay quarterly estimated taxes. When my freelancing was just "some work on the side," however, I skipped the quarterly taxes, and was never penalized. At that point, my freelance income was a smallish percentage of my total income. Now that freelancing represents 100% of my income, I'm penalized if I miss any quarterly payments.

You'll need to google for more info on the above, but at least there's a starting point for ya.

(3. I don't know; 4. Eh, probably, but I can't think of them either.)
posted by iguanapolitico at 4:47 PM on September 17, 2008

I consulted off and on under my own name. You will want to keep track of all your legitimate expenses. Personally, I tend to err on the side of caution and only count things that are clearly just for the business. (examples: yes on mileage to client's site, no on deducting the spare bedroom as a home office.) At the end of the year, you will fill out a Schedule C which calculates your business income plus you will owe social security and medicare taxes. I don't remember the exact rule but your witholding is less than 90% of what you owe or 100% of last year's taxes, there will be a penalty for underpayment. The way to avoid that is to make your quarterly estimated tax payments (state and federal)

Also, depending on where you live, if you are conducting a business from your home, you may need to apply for a business license and pay an annual business tax. (Where I lived at the time, I filled out a one page form, got it approved by zoning and paid $10 a year to keep it current but other places may hit you much harder.) I think if you are doing custom software, which is a service, you don't owe sales taxes as well but you should look that up on your local state board of equalization website.
posted by metahawk at 6:21 PM on September 17, 2008

From a long-time sole proprietor; now a business owner.

1. If there's little risk of being sued, be a sole proprietor under your own name. Depending on your state, you may not need to file a DBA or anything like that. You don't need a separate checking account, though it can help with money management.

If you do want some legal protection, it's easy to file as an LLC, at least in my state. It cost me $85 and took about 10 minutes online. It didn't change how I file my taxes because I'm a one-person LLC--the same as a sole proprietor in the eyes of the IRS. I opened a separate business account so I could deposit checks made out to the business name.

2. Report your income and your expenses. You might have more business expenses than you think (mileage to Staples + the supplies you buy there + software + books + etc.). If you're not using money management software like Quicken yet, consider starting. It will make it easy to track your business expenses.

Since you're probably using the same equipment for school, don't try to deduct it as a home office.

Every time you get paid, put 30% of the amount in a high-interest savings account. You'll use that to pay your taxes. The first year, estimate your taxes by projecting your income so far onto the year and using online calculators for the self-employed. In following years, just pay 1/4 of the previous year's tax, unless you're making a lot less, in which case it's worth it to figure it out again.

3. Very rough rule of thumb: no less than $50/hour for any sort of skilled freelancing, no matter where you live in the US. I assume niche software programming can get a lot more than that.

4. Always always always have a contract, even if it's just a letter of agreement. I like books from Nolo Press for help with that, or the book Wage Slave No More. The contract should cover who owns rights to the code, etc.

As you get more used to the work and see how long it usually takes, consider charging a flat fee rather than an hourly one. If you're fast, you'll make more money that way, sometimes a lot more. It might also be easier to get more clients (clients like a simple price tag).

Check out new clients thoroughly and charge new ones (and preferably old ones, too) 1/3 up front.
posted by PatoPata at 6:46 PM on September 17, 2008 [2 favorites has favorites]

I came here to say pretty much exactly what PatoPata just said. It reflects my exerience almost perfectly.

It depends what kind of development you're doing, who you're doing it for and where you are but you should probably be in the $80-$130 range. I'll 2nd the "never work for less than $50 an hour" or you'll be losing money. And work for a flat fee when you can. If you work fast and are good with planning it can greatly increase your income. Or greatly decresase it if you bid poorly or a project goes to hell.

And 1/3 up front always. Don't write a single line of code until you have a signed contract. For longer projects break them into dated milestones that not only include detailed deliverables from you, but also detailed deliverables from the client (approvals, assets, etc.) If they break a delivery date, move the dates on the whole project forward. If you finish milestone 2 and haven't gotten paid for milestone 1 yet, don't start working on M3.

Clients are most receptive on Tues-Thursday between 10:00-3:00 so try to contact them then. At the fringes of the day/week they're distracted with other stuff and you'll either be annoying them or your requests won't get handled with much attention.

And most importantly go find an accountant now. Right now. Meet with one by the end of the week. I am not joking. Yes, it's an expense, but probably not more than $250 per year, and that's deductible. That's only 2-3 hours worth of work. They will save you money, a lot more than they cost. And then you won't have to worry about Questions 1,2 and 4, or relying on answers from strangers on the Internets.
posted by Ookseer at 7:11 PM on September 17, 2008

iPhone app development is in high demand. The hourly range for experience freelance software developers in the US goes all over the board, from around $25 for an inexperienced coder to more than $200 for the best consultants in high-demand, limited-supply areas.
posted by lsemel at 8:28 PM on September 17, 2008