Let’s look at what the pros and cons are, as well as financial and tax advantages of setting up an LLC to do freelancing. This means that corporations can cost more to run than sole proprietorships, partnerships, and LLCs, as they do not have employees who could be taxed, unemployed insurance or any other legal purpose.
Keep this in mind when you’re reading about corporations. You can have the same benefits as a corporation, but an LLC will give you the exact same benefits. It’s also easier and cheaper.
If I’m a freelancer, what are the tax benefits of setting up an LLC?
An LLC will not provide tangible tax advantages for many freelancers. A sole proprietor can take most deductions available to a one-member LLC. A freelancer can take any deductions that are allowed by an LLC, but not other corporations. You shouldn’t expect immediate tax savings by forming LLC.
A LLC operating agreement is a document which outlines ownership rights and member obligations for your LLC.
You can form an LLC by getting an Employer ID number. This allows your company to open a bank account, build credit and get business credit.
It can be overwhelming to think about how to form and maintain your business.
LLCs protect your personal assets.
Cost of an LLC will vary depending on the state where it is formed. For freelance writing businesses, the main cost for forming LLCs is their state filing fees. Depending on the state, this fee can range from $40 up to $500. Learn more in the What are the Different Types Of Business Entities?.
Although you may be used to it all, that does not mean that you shouldn’t apply the same thinking to tax law and business costs. An accountant can help you establish, manage, and run your LLC’s finances. An accountant will be familiar with the accounting codes and standards required to protect your hard earned money. This is a significant investment but it’s a worthwhile one for most.
Are you ready to create an LLC?
An S corp status means that the employer must pay its employees a fair salary for their work. This treatment is not recommended or necessary until your company has a substantial annual net profit. Talk to your tax advisor to discuss your individual tax situation. Your personal tax situation can also impact when corporate tax treatment should be chosen.
Report your income and losses only on your personal tax return, IRS Form 1040. Then list your business income on Schedule C Profit or Loss From Business.
If you work as a freelancer and don’t form an LLC, corporation or other entity to do so, you will automatically be a sole proprietor.
It depends. You might find these default entities to be fine, but you may not get the benefits of other alternatives if they are accepted without considering your options.
Your personal property could be at risk if you get into legal trouble. It includes personal and jointly-owned assets.
