4 Reasons Why Every Freelancer Should Form an LLC
The U.S. independent workforce report found that 59 million Americans are now freelancing, and 36% of them do so full time. The total annual freelance earning also increased to $1.2 trillion in 2020.
Freelancing has, therefore, become a full-fledged business model and is no longer just a side hustle. Every freelancer should consider forming an LLC to attract new opportunities and make more money.
Not convinced? We’ve got all the reasons you need to take your freelancing work to the next level.
LLC for Freelancers: 4 Reasons Why You Need One
Though it is not necessary for freelancers to register a business, forming an LLC can help you attract more work opportunities, protect your personal assets, and save money on taxes.
The best part is that an LLC is extremely easy to set up. It is not as complicated as incorporating a business. You just need to file Articles of Organization with the Secretary of State and create an LLC Operating Agreement to define member roles.
As a solopreneur, you can start a single-member LLC with minimal legal requirements and have full control over your freelance business.
If the process of state and federal filings is holding you back, you should consider leveraging the hassle-free, secure, and cost-effective filing services of GovDocFiling. They also offer expedited application processing at no additional cost.
Setting up an LLC as a freelancer can help you:
1. Attract More Business Opportunities
Whether you’re freelancing full time or part time, forming an LLC will make you appear more credible to potential clients, especially large corporations.
When you register your freelance business as an LLC, you can:
- Design and print business cards.
- Build a professional website in your company’s name instead of your own name.
- Sign contracts under your business’ name.
- Create a unique and memorable brand identity.
All of these advantages will help improve your professional image in the eyes of your potential and existing clients.
Even large companies that usually don’t trust freelancers will be more likely to give their projects to you once you’ve formed a legal business entity. This means that forming an LLC can open up more opportunities for you to acquire high-value clients and enhance your freelancing portfolio.
2. Protect Your Personal Assets
As a freelancer, you are probably signing independent work contracts already. Forming an LLC for your freelance work will allow you to sign contracts under your business’ name.
How does it make a difference? If you happen to make an expensive mistake or land up in a lawsuit due to your freelance work, your LLC can protect your personal assets against attorneys and financial losses.
As an LLC, you can also buy business liability insurance to protect yourself and your business from the worst situations.
3. Get Your Freelance Business a Bank Account
When you form an LLC, you also get an Employer Identification Number (EIN)/Tax ID which helps your business become a separate entity from you as an individual. With it, you can open a business bank account for your freelance work and also get credit under your business’ name.
Opening a business bank account can help you:
- Keep track of your freelancing income.
- Maintain accurate records of all of your business expenses and profits. The records can help you claim tax deductions on business expenses like home office rent and travel costs.
- Save money on equipment, laptop, furniture for your home office, and the other business purchases you make using your business credit card.
4. Save Money on Taxes
As a freelancer working on your own, you’ll form a single-member LLC. Your LLC will be taxed as a Sole Proprietorship by default, which means that you’ll need to report your LLC profits and losses on your personal income tax form.
The good part is that you’ll be able to claim tax deductions for your freelance business expenses. This includes the rent of your home office, your travel expenses, and the cost of any new equipment you buy.
However, as an LLC owner, you’ll need to pay self-employment tax on the net income of your business.
Why Should You Choose LLC As Your Business Structure?
When it comes to registering your freelance work as a business, forming an LLC is not the only option. You can also run your freelance business as a Sole Proprietorship or a Corporation.
However, registering it as a Sole Proprietorship will not protect your personal assets against lawsuits and financial losses. You will not be able to open a business bank account, which means it will be challenging to separate your personal finances from your freelance business finances.
At the same time, forming a Corporation is a more complicated process than forming an LLC. Corporations are also subject to double taxation and have higher startup and operational costs than LLCs.
That’s why forming an LLC for your freelance work is the best choice.
Ready to Form an LLC for Your Freelance Business?
Every freelancer who has a decent flow of regular client work should consider forming an LLC. However, you should evaluate if you’ll be able to earn enough money to pay the state and federal filing fees and cover the ongoing costs of an LLC.
If you’re serious about freelancing and want to make a good full-time income from it, you should definitely form an LLC. Establish yourself as a professional service provider regardless of your industry and nature of work to win more clients.
Need help registering your freelance business as an LLC? Connect with our business formations experts in the comments below.