Your first year self-employed: a checklist

When you start to work for yourself, nobody tells you that you are now a business. There is no form and no letter from the IRS. If you do business and do not register as another kind of business, you are a sole proprietor automatically (SBA).

Because nothing makes you set things up, many people wait until tax time. Then they rush. This checklist puts the steps in a simple order, so your first April is calm.

The short version

• Decide if you stay a sole proprietor or form an LLC.
• Open a separate bank account for the business.
• Keep simple books from the first payment, with receipts.
• Get a Form W-9 from anyone you pay.
• Put a share of every payment aside for tax.
• Pay estimated tax four times a year if you expect to owe $1,000 or more (Form 1040-ES).
• Close the year before you file.

Words to know

• Sole proprietor: one person who owns a business that is not a company. This is the default.
• LLC: a limited liability company. You form it under your state’s law.
• Estimated tax: tax you pay during the year, because nobody withholds it from client payments.
• Schedule C: the form where you report your business income and expenses with your Form 1040.

Week one: choose your business type

A sole proprietorship costs nothing to start. But the SBA says the owner can be held personally liable for the business’s debts (SBA). An LLC can limit that. It usually has a state fee.

For federal income tax, the difference is small. An LLC with one owner who is a person usually reports its business on Schedule C, the same as a sole proprietor (IRS). Ask a lawyer or accountant in your state which is better for you. Also check if your state or city needs a business license or a registration for your business name.

Month one: set up your money

• A separate account. Put all business money in and out of one account. Then your books follow your bank statements. See how to separate business and personal finances.
• An EIN, if you want one. Many sole proprietors can use their Social Security number. A free EIN lets you give clients a number that is not your SSN. See do I need an EIN.
• W-9s. Ask a contractor for a W-9 before you pay them. For payments made in 2026, you generally send a Form 1099-NEC to a contractor you paid $2,000 or more (IRS).

Every month: keep simple books

The IRS says that, except in a few cases, the law does not require a special kind of records. You can use any system that clearly shows your income and expenses (IRS). Keep the receipts and bills that support each entry.

A monthly routine takes about an hour. If you fall behind, you can catch up on bookkeeping later:

1. Download your business bank and card statements.
2. Give each transaction a category, such as software or advertising.
3. Keep receipts for anything that is not clear from the bank line.
4. Mark transfers between your own accounts, so they do not look like income.
5. Check that your books match each statement’s ending balance.

Every payment: set tax aside

Self-employment tax is 15.3% of 92.35% of your profit. That is about 14.1% (IRS Topic 554). Income tax comes on top. Pick a percentage and move that share of each payment into a savings account on the day it arrives. See how much to set aside for taxes.

Every quarter: pay estimated tax

For 2026, the due dates are April 15, June 15 and September 15, 2026, and January 15, 2027 (Form 1040-ES). In your first year, there is a simple rule. To avoid a penalty, you can pay 100% of last year’s total tax. Use 110% if last year’s AGI was more than $150,000 ($75,000 if married filing separately) (Form 1040-ES). Tax withheld from an old job counts too. See quarterly estimated taxes.

You can pay online with IRS Direct Pay or your IRS Online Account (IRS).

Year end: close the year

Check your December statements, then run a Profit and Loss report for the year. Send 1099-NEC forms to contractors who need them. On your first Schedule C, check the box on line H to show that the business started that year (IRS). Keep your records for at least 3 years in most cases (IRS).

An example

Maya leaves her job in March 2026 to work as a freelance designer. (She is an example, not a real person.) Her total tax for 2025 was $8,000. Her old job withheld $1,000 in 2026 before she left. To use the 100% rule, she must pay $7,000 more. She pays $1,750 on each of the four due dates. She also sets aside 25% of each client payment, because her tax for 2026 can be more than the safe amount, and she pays the rest in April 2027.

A Righto tip

Righto is a free accounting app for Mac that keeps your books on your computer. Import your bank statements as CSV, OFX or PDF, and give each transaction a category. Then the Profit and Loss report shows your profit so far. You can also ask your own AI agent, such as Claude Code, for it. See how agents work with Righto.

Common questions

Do I need to register with the IRS to start freelancing? No. A sole proprietor reports the business on Schedule C with Form 1040. Your state or city can have its own rules.

Do I need an LLC to deduct business expenses? No. A sole proprietor deducts business expenses on Schedule C too.

What if I missed a quarterly payment? Pay as soon as you can. A late payment costs less than no payment.

What to do now

1. Open a separate business bank account.
2. Download every statement since you started and put it in your books.
3. Find your total tax for last year.
4. Pay your next estimated tax on time. The next date is January 15, 2027.

Righto is free, easy to use and needs no account.

Sources

• Choose a business structure, U.S. Small Business Administration
• Single member limited liability companies, IRS
• 2026 Form 1040-ES, Estimated Tax for Individuals, IRS
• Form 1099-NEC and independent contractors FAQs, IRS
• Recordkeeping, IRS
• Topic no. 554, Self-employment tax, IRS
• Payments, IRS
• Instructions for Schedule C (Form 1040) (2025), IRS
• How long should I keep records?, IRS