3 Reasons to Set Up an LLC For Your Freelancing Business
Setting up an LLC can make your freelance business more official and providing convenient benefits come tax season and beyond.
Are you ready to take your freelancing business to the next level? If the answer is yes, then setting up a limited liability company (LLC) might be the next step for you. Before we head into the benefits of structuring your freelance business this way, let’s first look at what defines an LLC.
An LLC is a US-specific hybrid business structure that represents a middle ground between a sole ownership or partnership and a regulated corporate structure. An LLC combines the convenient flow-through taxation of sole proprietorship or partnership with the limited liability of a corporation.
Generally speaking, an LLC is the best business structure for most small businesses with growth in mind. Below are three main reasons as to why you should consider setting up an LLC for your freelancing business.
It is Simple and Inexpensive
Setting up and keeping an LLC running may seem daunting at the start, but, luckily, it is definitely easier and cheaper than setting up a corporation. You won’t be facing the administrative burdens that come about when running a corporation. You will also not be required to appoint board officer positions or conduct yearly shareholder meetings.
Forming your own LLC is as simple as completing and filing your Articles of Organization to the state government. The fee for the application differs by state. For example, it’s currently $200 in New York. To keep everything in order, just like any other business structure, it’s important that you plan meticulously and document any financial transactions through your business and account for any incoming revenue streams.
It Makes Your Business More Official
Forming an LLC makes your freelancing business its own legal entity separate from you as a “sole” freelancer. This establishes your freelancing services as an official business, which signals to others that you’ve made a proper commitment to your chosen occupation.
It might seem like a small thing, but attaching an LLC to the end of your freelancing business name can do a world of good for improving perception—whether it’s with potential clients or collaborators. They might be more willing to trust you and work with you, compared to freelancers who haven’t taken those same steps to establish their business and make things official. In addition, having a LLC can also serve as leverage for you to ask for more money for your services, which we all know can often be scary or difficult.
Gives You Tax Benefits
Lastly, but definitely not least, structuring your freelance business as a LLC offers the most versatility in determining how the business is taxed, while still having the limited liability of a corporation. And as any freelancer would know, taxes are the bane of the freelance world. Thankfully with a LLC, you’ll be able to customize your benefits to fit your business’ needs. When forming your LLC, you get to choose how your business is going to be taxed—through pass-through taxation or corporate taxation.
Pass-through taxation is the default rule, and your freelance earnings will be taxed as if you’re in a partnership. This means your taxes are moved from you as a freelance business owner to your personal tax returns. But if your LLC only has you as a member, your business will be taxed as a sole proprietorship.
If it is to your business’ advantage to be taxed as a corporation, you have that option as well. In corporate taxation, you will be considered an employee of your business. If you choose this option, you’ll have to file a RS Form 8832, which asks that they tax you like a corporation.
There are other benefits that a LLC offers, from protecting your individual assets to not having any location requirements, but we hope that the three main benefits mentioned above can help you decide whether an LLC is the best business structure for your growing freelancing business.
Jannina Bless is a business and trends blogger with a knack for statistics data. She was born in North Carolina, but now resides in the UK with her husband and two lovely children.