Freelancers work at the mercy of the market. If you’re freelancing during COVID-19, the see-sawing economy may make you want to shelve your business for a while. But this may actually be the ideal time to officially form an LLC for your freelancing business. Seems crazy, right? But official registration confers many benefits, we think that by the end of this post you’ll agree. Here are the top five reasons why freelancers should form an LLC.

Protect Your Personal Assets and Limit Your Personal Liability

First and foremost, LLCs limit your personal liability as a business owner. When you freelance without an official entity, the government views your business as an extension of yourself. If your business gets sued, you could be held personally liable and creditors could go after your personal wealth. Forming an LLC allows you to isolate personal assets like your car, home, and accounts. As long as you run your business properly, the LLC sets up a shield between your personal assets and any liability your freelancing business may face.

Flexible Taxation for Freelancers

LLCs offer freelancers a flexible tax structure for their business, which is especially useful if you’re freelancing during COVID-19. By default, the IRS taxes LLCs as pass-through entities. What does this mean? The LLC’s income or losses “pass through” to the owner to be included on their personal income tax forms. The LLC doesn’t pay taxes as a business or entity. Only the business owner does, at the individual level.

If “pass-through” taxation doesn’t appeal to you, you can make a special election to have your LLC taxed in another way. Each option has its pros and cons. We strongly recommend that you talk with your accountant before making this decision.

You can also opt for S-Corp taxation. This allows the income and losses of the LLC to pass through to the owners of the business. The members pay taxes on their allocated share of the income, gains, and losses, rather than what the members actually received.

Talk to your accountant for details on how each of these structures works, their intricacies, and whether they’d fit your business.

Flexible Ownership

LLCs can be structured and run nearly any way a freelancer likes. You decide who will run the business, how the business operates, the business’s tax structure, and how much initial capital you contribute. You keep all of these details in the LLC’s operating agreement, the document discussing how the business is run.

Boost Your Credibility

Three small letters speak volumes. When you add “LLC” to your business name, people know that your business is legitimate. Customers and potential partners will trust that they are working with a “real” business.

Easy to Set Up and Simple to Maintain

LLCs require minimal maintenance, one of the major benefits of their flexible structure. As a small business owner, the last thing you want to worry about is whether you are handling the formalities of your business correctly. LLCs (unlike corporations) make it simple. Further, it is (relatively) easy to add new partners or members as your business develops or your long-term goals change.

LLCs’ low-stress formation and straightforward maintenance make them an excellent choice for the budding entrepreneur. The less headache the better, especially if you’re freelancing during COVID-19.

 

Are you ready to protect your business?

This article has tons of LLC info, like:

  • LLC Formation: Why?
  • LLC, C-Corp, or S-Corp?
  • How to form an LLC

You can learn more here.

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