Are you considering forming an LLC for your side 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 leads business development and growth initiatives at Incfile . We wanted to find out why freelancers should consider forming an LLC. Ray started with an explanation of the term and why a small business should consider incorporating: “The abbreviation “LLC” stands for limited liability company. LLCs allow business owners to keep their personal assets separate from those of the company,” he says. “This limits their own liability when it comes to company debts and responsibilities.” Should Freelancers 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 tax ID. It’s this number that separates your business identity from your personal identity legally. “That means your business can get its own bank account and build business credit under the business’s name,” Ray says. Having a business bank account and business credit card helps in several ways. Business Income With these business tools you can keep track of your business income and keep 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 Should Freelancers Establish Themselves as an LLC?money on equipment, subscriptions or a new laptop,” he says. “Furniture for your home office or any other necessary purchases for your business can be included.” An LLC can also help you build up your business credit. The first step is starting with your business credit card and working your way up to a business line of credit or small business loan. Advantage During Tax Season Another big advantage to incorporating comes during tax season. Small 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 lets you sign contracts under your company name. That’s important in case a costly mistake happens like an injury or accident with the resulting lawsuit. This corporate shield protects personal assets if and when that happens. Professional and Official Besides, you look more professional and official to prospects 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 is still possible to do freelance work and earn money as a sole proprietor,” he says. “However, being a sole proprietor might […]
