Going Self-Employed as a Contractor in the USA
Going self-employed as a contractor in the USA is one of the most common paths to building real wealth in the trades. But without the right foundations, it’s also one of the fastest ways to create stress, tax problems, and legal exposure. This checklist covers everything to do before, during, and after launch.
Before You Start: Legal and Business Structure
Choose your business structure:
| Structure | Pros | Cons |
|---|---|---|
| Sole proprietorship | Simplest, no filing required | Full personal liability |
| LLC | Liability protection, flexible tax | State filing fee ($50-$500) |
| S-Corp | Tax savings on self-employment tax | More complex, payroll required |
Most contractors start as a sole proprietor or LLC. File your LLC through your state’s Secretary of State website. See IRS.gov for the full comparison.
Get your EIN (Employer Identification Number): Apply free at IRS.gov/EIN. Takes 5 minutes. You need this for opening a business bank account, filing taxes, and hiring.
Licensing and Registration
Contractor licensing in the US is state-regulated – there is no federal contractor license. Requirements vary significantly:
- Some states (California, Florida, Texas) require trade-specific licenses
- Some counties and cities add local licensing on top
- Electrical and plumbing work typically requires a journeyman or master license
Check your state’s contractor licensing board. NASCLA provides a state-by-state overview. OSHA 10-hour certification ($30-$80 online) is increasingly required on commercial projects.
Insurance
Essential coverage for US contractors:
| Insurance | Notes |
|---|---|
| General Liability ($1M minimum) | Covers property damage and third-party injury |
| Workers Compensation | Legally required if you have employees in most states |
| Commercial auto | Personal auto policy invalid for business use |
| Tools and equipment floater | Covers theft and damage of your tools |
Get quotes at Next Insurance, Hiscox, or through a local independent broker.
Tax Setup
Self-employed contractors pay self-employment tax (15.3%) plus federal and state income tax. Set aside 25-30% of gross revenue from day one.
Required actions: – Pay quarterly estimated taxes (due April, June, September, January) – Track all business expenses meticulously – tools, truck, phone, insurance, home office are all deductible – Issue 1099-NEC forms to any subcontractor you pay over $600/year – Consider a CPA familiar with trades – it typically pays for itself
Frequently Asked Questions
Most cities and counties require a general business license separate from your trade license. Check your city/county clerk’s website. Costs typically $50-$200/year.
25-30% of gross revenue is a safe starting point. Use a separate bank account and transfer that percentage from every payment received. See IRS Publication 334 for the full self-employment tax guide.
CoreQuote is a quoting and invoicing app for US contractors. Download free on Android — get CoreQuote free.
Financial and Tax Setup for Self-Employed Contractors
Before your first paid job, you need the financial foundations in place. These aren’t optional — getting them wrong creates problems that are significantly harder to fix later.
- EIN (Employer Identification Number) — apply free at IRS.gov even if you have no employees. Required to open a business bank account and file Schedule C.
- Separate business bank account — mixing personal and business finances creates bookkeeping problems at tax time. Open a dedicated business checking account before invoicing anyone.
- Self-employment tax — as a self-employed contractor, you pay both the employee and employer portions of Social Security and Medicare tax (15.3% total on net earnings). Make quarterly estimated tax payments to avoid IRS penalties.
- Business structure — most contractors start as sole proprietors. An LLC provides liability protection and minimal paperwork overhead. An S-Corp election can reduce self-employment tax once revenue exceeds around $50,000.
Contracts, Quotes and Getting Paid
Getting paid reliably requires clear written agreements before work starts. A verbal agreement is almost impossible to enforce when a customer disputes scope or price.
- Use written quotes for every job — itemised by labour and materials
- Include payment terms (net 30, 50% upfront, or similar) in every quote
- Get signed approval before starting work — a digital approval timestamp is as valid as a signature
- Invoice on job completion, not at month end — same-day invoicing gets paid faster
- Require deposits on jobs over a threshold — typically 25–50% depending on materials cost
Quote professionally with CoreQuote
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Download on AndroidDownload on iOSThe key requirements are: registering your business (sole proprietor, LLC, or corporation), obtaining an EIN from the IRS, getting the appropriate contractor’s licence for your state and trade, purchasing general liability insurance, opening a business bank account, and setting up quarterly estimated tax payments. Some states require a separate state tax registration.
Most states require a contractor’s licence for trades work, though the specific requirements vary by state and by trade. General contractor licences, electrical licences, plumbing licences, and HVAC licences each have different requirements. Working without the required licence can result in fines, inability to pull building permits, and difficulty enforcing payment from customers.
