How Much Does It Cost to Run a Business? Freelance and Small Business Expenses in 2026

Running a Business — What Does Being Your Own Boss Really Cost?

Whether you're a freelancer, solopreneur, or small business owner, "being your own boss" comes with a price tag beyond what you earn. Taxes, insurance, software, accounting — the overhead adds up fast.

Setting Up

The good news — starting is relatively cheap:

• Sole proprietorship / LLC registration — $50–$500 (varies by state/country)
• LLC operating agreement — $0 (DIY) to $1,500 (attorney)
• Business bank account — $0 (many banks offer free business checking)
• EIN (Employer Identification Number) — $0 (free from the IRS)
• Business license — $50–$400 (varies by locality)

Taxes — the Biggest Variable

Self-Employment Tax (US)

• Social Security + Medicare — 15.3% of net earnings (up to the SS cap of ~$168,600, then 2.9% above)
• This replaces the employer's share of payroll taxes — it's the biggest shock for new freelancers

Income Tax

For a freelancer earning $120,000 net:

• Self-employment tax — ~$17,000
• Federal income tax — ~$18,000–$22,000 (depending on deductions)
• State tax — $0–$12,000 (varies wildly)

Quarterly Estimated Payments

Self-employed people must pay taxes quarterly (April, June, September, January). Underpaying triggers penalties.

Health Insurance

The cost most employees take for granted:

• Marketplace plan (Silver, individual) — $400–$800/month
• Marketplace plan (family) — $1,200–$2,500/month
• Health sharing ministry — $200–$500/month
• Short-term plan — $100–$300/month (limited coverage)

Subsidies available based on income through Healthcare.gov.

Accounting and Bookkeeping

• DIY software (QuickBooks Self-Employed, Wave) — $0–$30/month
• Bookkeeper — $200–$500/month
• CPA (tax prep only) — $300–$1,000/year
• CPA (ongoing advisory) — $200–$500/month
• Full accounting (small company) — $500–$2,000/month

Banking and Payments

• Business checking — $0–$30/month
• Payment processor (Stripe, Square) — 2.6–2.9% + $0.30/transaction
• Invoicing software — $0–$30/month
• Merchant account — $10–$30/month + per-transaction fees

Office and Tools

• Virtual address / registered agent — $10–$50/month
• Coworking space — $150–$500/month
• Traditional office — $500–$2,000+/month
• Domain + hosting — $50–$200/year
• Software stack (Google Workspace, Slack, project management) — $30–$100/month
• Phone plan — $30–$60/month

Insurance

• General liability — $300–$1,000/year
• Professional liability (E&O) — $500–$2,000/year
• Business property — $200–$500/year
• Workers' comp (if you hire) — varies

Summary — Monthly Business Costs

Solo Freelancer (Remote)

Small Company (2–3 people)

How to Reduce Business Costs

1. Maximize deductions — home office, equipment, internet, phone, education
2. Consider an S-Corp election — can save thousands in self-employment tax at higher incomes
3. Use free/cheap tools — Wave for accounting, Notion for project management
4. Work from home — save on office costs
5. Batch quarterly tasks — do taxes and bookkeeping in dedicated sessions, not daily

How Freenance Can Help

Running a business means managing two budgets — personal and business. Freenance helps you separate personal finances from business expenses, track income and outflows, and plan a financial cushion for taxes and slow months.

With automatic categorization, you see what your business really costs — and what's left for you.

👉 Get your business and personal finances sorted with Freenance

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FAQ

What does it actually cost to start a small business?

For most solo founders, formation costs run between $50 and $500, plus optional fees for a registered agent and basic licenses. The bigger ongoing cost is not the registration but the recurring overhead — taxes, insurance, accounting, and software — which can easily reach $1,000–$2,500 per month.

Why is self-employment tax such a shock for new freelancers?

When you are self-employed you pay both the employee and employer portions of Social Security and Medicare, which totals 15.3% of net earnings up to the Social Security wage base. Employees only see half of this on their pay stub, so first-time freelancers often underestimate their true tax bill by thousands of dollars.

When does an S-Corp election start to make sense?

An S-Corp election typically becomes worthwhile once net business income reliably exceeds roughly $80,000 per year, because you can split income between a reasonable salary and distributions, reducing self-employment tax on the distribution portion. Below that level, the additional payroll, bookkeeping, and tax-prep costs usually outweigh the savings.

How much should I set aside for taxes as a freelancer?

A common rule of thumb is to reserve 25–35% of every payment received for federal, state, and self-employment taxes combined. Keeping that money in a separate account and making quarterly estimated payments helps avoid penalties and large surprises in April.

What is the biggest hidden cost of running a small business?

The most underestimated cost is usually health insurance combined with retirement savings, since both must now be funded entirely by you instead of subsidized by an employer. Together they can easily add $800–$1,500 per month that does not show up in a typical "starting a business" checklist.