Whether delivering food, gigging as a graphic designer, working as a blogger, or recording podcasts, you are running a small business as a freelancer. Forming an LLC as a freelancer is worth it even if you do not have an attractive company name or employees.
Setting up an LLC is simple and does not involve too much cost or effort. The recognition that you get from working as a business owner will help you attract high-profile clients. This will allow you to earn higher rates for your projects. If you are wondering whether you would need to start an LLC as a freelancer, this article is for you. You will also get a solution to easily establish your business in the US from any part of the world.
Do I need to register a company as a freelancer?
As the name itself indicates, a limited liability company limits one’s personal liability and can be an advantageous business model for freelancers. When you start working as a freelancer without any business structure, the government treats your business as an extension of you as an individual. This can be an easy way to kick-start your work, but it can be risky in the long term.
If you work as a contractor or a freelancer, you will receive 1099s from the clients you work with, but the taxes are not automatically deducted. In case you have not formed an LLC, you will be considered a sole proprietor. Let’s discuss why you must register your LLC as a freelancer.
- Tax Flexibility: As an LLC, you have more control over your business since you are free to choose the tax structure. It means you can choose the tax regime that’s best suited to your business model.
- Asset & Liability Protection: With an LLC, your personal liability minimizes to a great extent. Otherwise, the legal and financial troubles recurring from the work could expose you to some sort of personal liability.
- Business Credit: Your EIN (Employer Identification Number) enables you to open a business account and build credit as a business owner. This unlocks many benefits a couple of years down the line, so registering an LLC as a freelancer is always beneficial.
Apart from the above-mentioned benefits, you will enjoy additional benefits as a business owner. After forming an LLC as a freelancer, you get opportunities for expansion as you obtain an EIN that allows you to hire employees to deliver services. If you can create a catchy website and market your business extensively on various online channels, you can attract more clients and earn better revenue. Handling your work as an LLC makes you look more professional. Now let’s understand the difference between the sole proprietor and a limited liability company to get a better understanding of which business model is most appropriate for you.
Sole proprietorship vs LLC: Which is best for freelancers?
While it is feasible to establish a business as an LLC, you can even handle your work tasks as a sole proprietor. But before you decide to register your company, it is important to understand these business models thoroughly so that you can pick the best option. A clear comparison between the two business structures will help you make a wise decision.
What is a sole proprietorship?
In general, a sole proprietorship is a business entity that has one owner who pays income tax on the profits earned. Also known as a “sole trader,” it is an unincorporated business that individual freelancers usually do under their names. Creating a separate company or entity is not always necessary. However, it is the simplest type of business formation that is subject to the fewest government regulations. This model is appropriate for self-employed individuals, freelance consultants, and sole business owners.
What is an LLC?
As mentioned above, a limited liability company (LLC) allows you to separate business assets from personal assets. This business structure minimizes your personal liability and protects you from lawsuits and debts. If any client sues your LLC, it will not impact your personal assets. LLCs provide better legal protection and security than a sole proprietorship or a corporation. In simple terms, it offers better liability and asset protection than other business structures.
Why LLC is a better option?
If you own a limited liability company, the risk factor is restricted to the amount of investment. Your personal assets, like your car or house, are safe. However, you are responsible for the debts you owe. With a sole proprietorship, you don’t get that protective shield for your personal assets. With business finances and a lack of legal protection, your personal assets will be on the line if someone sues your business.
In addition, applying for an employee identification number will give you extensive benefits. You can use your tax ID instead of your social security number while sending W9 forms to your clients. You are eligible to open a business account, which will help keep business income and expenses separate.
How do I file taxes as a freelancer with an LLC?
An LLC can reduce tax obligations if managed and maintained properly. It gives you access to tax benefits that you may not get as a non-business taxpayer. Apart from that, registering an LLC as a freelancer provides intangible benefits that you can use to structure your business as per your needs. When you set up an LLC as a freelancer, you will need to select between pass-through taxation and corporate taxation. Since selecting your tax structure is complex, hiring professional services can simplify the entire process.
Workhy helps you set up an LLC as a freelancer
Proper documentation and planning are the keys to success. Specialized professionals can help you with business formation, from opening a business bank account to filing your taxes on time. If you are looking to set up a business in the US, contact Workhy to handle complex tasks. Workhy provides services to freelancers from all over the world who are looking to establish an online business in the US. From business address registration to financial management, you can seek expert guidance and handle all your business formation processes seamlessly. Click here for more detailed information about Workhy.
