Freelance Web Designer - Should I do LLC or just file SE 1040
Just keeping it simple. I am a freelance web designer, I have an accountant, and I take payments payable to my name. Is there any reason I should form an LLC? Am I safe to continue doing what I'm doing, which is file the SE 1040 Tax Form w/ any taxable income and itemize expenses?
3 Answers
Creating an LLC will give you some liability protection (LLC stands for limited liability corporation). In other words, it would explicitly separate your business assets from your personal assets in case you had to go bankrupt or you got sued.
However, there would be additional tax fees you'd have to pay for incorporating the LLC and the LLC would need to file its own return.
So it's a tradeoff and would depend on your particular situation. I suspect the best choice for you would probably be to continue doing the self-employed thing. 1. The LLC causes you to do more work (bank accounts, accounting, taxes, etc) and 2. the likelihood of getting sued in what you are doing is low (not zero, but likely low).
-
Thanks! I think it is (knock on wood) low and I do honest work for my clients and keep good relationships with them. – Justin 14 years ago
-
@justin if you ever thought of hiring some more people, you should definitely go the LLC route. – Michael Pryor 14 years ago
-
Thanks again. Unfortunately, I'm not at that level yet, but I thank you for the future input! – Justin 14 years ago
Do you have any agreements with clients that you work with? I'd say freelancer is the same as an individual proprietor, therefore you can do business under your own SSN. You could create an LLC and do business under that entity, but than again, you'll be liable for state franchise taxes.
-
I do have agreements with clients, sometimes they present a contract to me. Other times, I present it to them. Sometimes, there is no contract necessary. I do honest work and keep good relationships so I am happy to hear that I can continue doing what I'm doing. – Justin 14 years ago
For what it's worth my business law professor in college told us that if he ever learned any of us were operating as a sole proprietor he'd personally run to the registrar and tear up our transcripts and diplomas.
After operating as a sole proprietor for most of this year I've finally started the process of forming an LLC. I agree the odds of getting sued or needing to file for bankruptcy are low. However it does happen and if it happens to you, you'll want to have your personal assets off limits to creditors. I went ahead and bit the bullet with Legal Zoom but it is probably worth it to ask your lawyer friends to see if one of them can do it for a reduced rate.
We learn our best practices lessons from the difficult clients more often than the good ones.
