To start a consulting business, decide who you'll sell to and what you'll sell, pick a structure (a sole proprietorship or an LLC), register and get your tax IDs, then set aside tax from your very first invoice. In the US you're a sole proprietor automatically the moment you start doing business, so the real choice is whether that's the structure you want to keep.
Here's the catch most new consultants miss. Self-employment tax is fifteen point three percent: twelve point four percent for Social Security and two point nine percent for Medicare, and it comes on top of income tax, with nobody taking it out of your invoices for you. The IRS says sole proprietors generally need to pay estimated tax every quarter if they expect to owe $1,000 or more when they file, as of October 2026.
Sole proprietorship or LLC: which one to start with
The SBA compares both, and for a consultant the difference that matters most is liability.
| Structure | How you get it | Liability | Tax |
|---|---|---|---|
| Sole proprietorship | Automatic, if you do business and don't register as anything else | You can be held personally liable for business debts | Self-employment tax plus income tax |
| LLC | You register it | Owners aren't personally liable | Self-employment tax, with personal or corporate tax |
A sole proprietorship is easy to form and gives you complete control, which is why most people start there without realising they've chosen anything. The trade-off is that there's no separate business entity, so your business debts are your personal debts. An LLC can have one owner or several, and the owners aren't personally liable. Consulting is advice, and advice can go wrong, so I'd think about liability before the first contract rather than after it.
The SBA launch list, in order
- Pick your location. Zoning can still apply to a home-based business, and it's set locally, so check with your city planning department.
- Choose your structure.
- Choose a business name.
- Register your business.
- Get your federal and state tax IDs.
- Apply for any licences and permits you need.
- Open a business bank account.
- Get business insurance.
None of these is hard on its own. The mistake is skipping the bank account and the insurance because you've only got one client so far. Keeping business and personal spending apart makes the tax side far easier, and in advice work, cover is worth having before you need it.
Self-employment tax in plain English
When you're employed, your employer pays part of your Social Security and Medicare. When you consult, you pay the lot. The IRS calls this self-employment tax, and as of October 2026 it's fifteen point three percent: twelve point four percent for Social Security and two point nine percent for Medicare.
There's some relief. You can deduct the employer-equivalent portion of self-employment tax when you work out your adjusted gross income. It only reduces your income tax, not the self-employment tax itself. And if you earn more, an Additional Medicare Tax applies above set thresholds, for example $200,000 for single filers and $250,000 for married couples filing jointly.
Your net profit is your business income minus your business expenses, so track every expense from day one. And if you're providing services to other businesses as an independent contractor, the IRS generally treats you as self-employed. It decides that by looking at behavioural control, financial control and the type of relationship, not your job title.
Do you need funding to start?
Most consulting businesses need very little to start: a laptop, a phone and somewhere quiet to work. If you do need a small loan, SBA microloans go up to $50,000, with an average of about $13,000 and a maximum repayment term of seven years, as of October 2026. You can't use one to pay off existing debts or to buy real estate.
Landing your first consulting client
Structure and tax are the boring part. The part that decides whether you've got a business is the first client. I've spent 23 years in marketing, and in my experience the first client usually comes from people who already know your work: former colleagues, former managers, suppliers and the clients you looked after in your last job.
Want AI doing the heavy lifting in your marketing?
I build the systems that handle the boring 80 percent, so you get your week back. Done properly, with the human kept in.
- Write one sentence that says who you help and what changes for them.
- List 20 people who've seen your work first-hand.
- Tell each of them, personally, what you now do and who it's for.
- Offer one clearly scoped first project with a start and an end date.
- Put the scope, the deliverables and the payment terms in writing before you start.
Once a few clients are paying, you'll want a simple way to send and chase invoices. My round-up of invoicing tools built for consultants is a good place to start, and when the pipeline grows, a CRM made for consultants stops follow-ups slipping.
My verdict
I'd start as a sole proprietor if you're testing the idea with one or two friendly clients and want to keep things simple. I'd look at an LLC before you sign bigger contracts, because personal liability is the part that can hurt. Either way, put tax aside from the first invoice. It's the one habit I'd never skip.
Once the paperwork's done, the next job is winning and serving clients without burning out. AI can help with both, and that's where I come in. I run AI training and workshops for teams, and help businesses with AI enablement, AI automation and GEO, which is about getting your business seen and cited in AI answers. Most of that work is with SaaS marketing teams, telecom companies and small businesses. Here's how we can work together.
Frequently asked questions
Do I need to register to start a consulting business?
Not to be a sole proprietor. You become one automatically when you do business and don't register as another kind of business. You'll still need tax IDs and any licences and permits that apply.
What is the self-employment tax rate for consultants?
As of October 2026 it's fifteen point three percent: twelve point four percent for Social Security and two point nine percent for Medicare, on top of income tax.
When do consultants have to pay estimated tax?
Sole proprietors generally have to pay estimated tax every quarter if they expect to owe $1,000 or more when the return is filed.
Does an LLC protect me from personal liability?
The SBA says LLC owners aren't personally liable. A sole proprietorship has no separate entity, so it gives you no such protection.
How big is an SBA microloan?
SBA microloans go up to $50,000, averaging about $13,000, with up to seven years to repay, as of October 2026. They can't be used to pay existing debts or buy real estate.
