Are you considering assembling an LLC for your surface hustle or freelance business? Research from Upwork says 59 million Americans have done some freelancing this year during the pandemic.
Small Business Trends contacted Dustin Ray who produces business development and expansion strategies at Incfile. We wanted to find out why freelancers should consider forming an LLC.
Ray started with an explanation of the expression and why a small business should consider incorporating 😛 TAGEND
“The abbreviation “LLC” stands for limited liability company. LLCs allow business owners to keep their personal resources separate from those of the company, ” he says. “This limits their own liability when it comes to company obligations and responsibilities.”
Should Freelances Consider Forming an LLC?
He goes on to explain the other reasons why forming an LLC is a good move to protect yourself and your business income. First off, you get an employee ID number which is basically a levy ID. It’s this list that separates your business name from your personal identity legally.
“That means your business can get its own bank account and construct business recognition under the business’s name, ” Ray says.
Having a business bank account and business credit card helps in several ways.
With these business tools you can keep track of your business income and stop accurate records of what you can deduct. You can also pay for any business expenses with a business credit card.
Ray explains why this matters.
“This can help you save money on paraphernalium, subscriptions or a new laptop, ” he says. “Furniture for your home office or any other required acquires for your business can be included.”
An LLC can also help you build up your business ascribe. The first step is starting with your business credit card and labor your way up to a business line of credit or small business loan.
Advantage During Tax Season
Another big advantage to incorporating comes during charge season. Big businesses can save money and time.
“If you have a business bank account, it’s easier to report your business income. And claim all of the tax deductions that you qualify for ,” he says.
There are other benefits to an LLC like what Ray calls a “corporate shield.”
Having an LLC causes you indicate contracts under your firm word. That’s important in case a costly mistake happens like serious injuries or coincidence with the resulting dispute. This corporate shield protects personal resources if and when that happens.
Professional and Official
Besides, you search more professional and official to expectations and clients.
“Signing a contract under your business’s name and presenting a business card that has your LLC’s name on it, ” Ray says. “These can be image-boosters and inspirations.”
He also talked about the potential consequences of not setting up an LLC for people who work on their own.
“If you do not form an LLC, it remains possible to do freelance manipulate and earn money as a sole proprietor, ” he says. “However, being a sole proprietor might not be the best fit for your overall business needs and business goals.”
Business Bank Account
Here’s an example. As a sole proprietor you can’t get a business bank account. All your business income needs to go into a personal bank account so you don’t build any business credit.
“You cannot separate your business and personal investments in case of a litigation, because you have no corporate shield.”
There are some cons to setting up an LLC. In fact, some businesses can’t even set one up. Those include business trust corporations, guarantee agencies and banks.
Some of the other possible flaws include the need to keep business finances separate from personal investments. There is at least one levy drawback too.
Taxes at a Corporate Level
Ray asks 😛 TAGEND
“Oftentimes the taxes reported as personal income of LLC members will be higher than the corporate duty level. You will likewise still pay for federal inclusions such as Medicare and Social Security as well.”
Ray proposals up another article of advice.
“It doesn’t matter what kind of freelance work you’re doing, whether it’s designing websites or mowing lawns, ” he says. “Having an LLC can help stir you inspect more “official” and professional in the eyes of your clients.”
He goals by describing the wide swath of people who file.
“At Incfile we receive all sizes and verticals of businesses structuring an LLC from real estate agents to monetary advisors. Solopreneurs such as personal teaches or even marijuana businesses file too.”
This article, “Should Freelancers Establish Themselves as an LLC ?” was first published on Small Business Trends
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