If you'd like to protect your personal assets, appear more legitimate to publishers, and establish an employment history for things like obtaining credit, then you should definitely look into incorporating or establishing a DBA.
Time Required: One month
1.Choices, Choices. Although it might sound complicated, your first step is to choose what kind of business front you want to frame your writing in. Operating without any kind of paperwork at all means that you are doing business as a sole proprietor--a very popular choice among many freelance writers. However, you might want to look into forming an LLC or LLP, which are both simple and somewhat inexpensive (only $50 around my area!), but offer more protection to you. Last, you could go even bigger by choosing a different kind of corporation.
Recommendation: An LLC will serve most writers' purposes.
2.All that paperwork! Don't be intimidated by the type and amount of paperwork it takes to set up your business. States are beginning to support and encourage small businesses by streamlining this process. For example, my LLC was only 2 pieces of paper and $50. Are you making this harder than it needs to be? You'll never know unless you do the research!
3.Feds! Yes, you now have to deal with the Federal government, but it's easier than you might imagine. You need an EIN for your small business. This is simply a number that's similar to your S.S. number, but you can give it clients in place of your S.S. It's simply the tax ID of your business, and it takes two minutes to obtain one at the IRS website. You just answer a few quick questions, and then they send you a letter in the mail. How official are you, now?
4.Do the research. This may be an extraneous step-- unless you find something. Your job now is to research your city, county and state regulations to make sure there are no licenses or permits you need to do your job. As a writer, it's a long shot, especially at the state level, where you've (supposedly) already made yourself know through your LLC paperwork (above). However, I have known writers that needed to tell their city about their home office, and obtain an inexpensive permit. Better safe than sorry!
5.Bank on it. With your LLC (or similar) paperwork in hand, it's time to make it official with your bank. Establishing a separate bank account for your company is crucial for future credit purposes. A business bank account in the name of your writing company is your next step, and should take only about 30 minutes of your time.
6.Keep records. You now need to manage your writing dollars. Whether you choose a simple Excel spreadsheet, or an entire software accounting system doesn't matter. What matters is that you keep your 'money in' and 'money out well-accounted for.
7.Pay Uncle Sam. Ahh, yes, every business needs to share the fruits of its labor with the government. Here's how to make sure you , and at the right times. (Hint, there's four of them-- not just one!)
8.Consider insurance. Do you have clients coming to your home office? You may need liability or "slip and fall" insurance. Have you ever considered the need for errors and omissions insurance? These are things to consider, now that you're official and all!
Again, don't be intimidated by any of these steps. I've known many writers who want to form an LLC, but are unsure of the process. I personally found it to be much simpler than I imagined, and hope you will, too!
What You Need:
DBA or LLC paperwork/correct agency (see exact link in article)
IRS.gov (see exact link in article)
Licenses or permits
Good tax preparer or software program