If you work as a freelancer, rather than being a full-time employee of an organization, it’s likely that you send out invoices and take payment for the services you provide as an individual trading entity.
However, a growing number of freelancers are setting up their own LLCs (limited liability companies) as a means of invoicing clients and paying themselves a salary.
Let’s look at why this might be an advantageous move, and what you need to think about when making it.
Managing your finances is easier
First and foremost, forming an LLC to channel your freelance endeavors is sensible because of how it impacts on both your financial opportunities and your tax affairs.
Taxes for freelancers can be complex, and yet it’s easier to orchestrate all of this if you set up an LLC and make use of a qualified accountant.ÂÂ
As an LLC you’ll be given an Employer ID Number, defining your business as a distinct entity for legal purposes, and opening up an avenue of other options as a result.
From being able to open a business bank account, with all the bells and whistles this entails, to generating a separate credit score for your LLC which could come in handy if you want to get a business loan in the future, there are many benefits to taking this route.
Of course as an employer, you will also be required to adhere to the rules and regulations which apply in this context, including when it comes to issuing documentation, even if you are the only member of the firm.ÂÂ
Thankfully with a free W2 generator and lots of other tools available to small business owners, meeting your obligations should not be too challenging.
Legal separation gives you peace of mind
Being a freelancer leaves you at greater risk of exposure to certain unpleasant scenarios which would not be as much of an issue if you were the employee of a wider organization. If you are paid via your very own LLC, then this entity is also culpable in the event of specific catastrophes occurring.
This could include workplace injuries resulting from accidents, as well as any financial issues that could arise in the line of duty.
It’s all about deferring liability, and lessening the likelihood that you will be the subject of any legal action going forward. Of course you’ll still need to get adequate business insurance to further defend yourself from the fallout of such dilemmas, but running an LLC is a good starting point.
Professionalism is an important consideration
Image is everything, especially in the world of freelancing where your reputation can play a large part in whether or not you win a commission or keep a client loyal.
If you become the head of an LLC to handle your freelancing work, you will also then be able to use whatever name you choose for it on everything from the business cards you hand out to the contracts you sign.
This could give clients the impression that you are more successful, dynamic and generally experienced than is actually the case, so as long as you’ve got the skills to back up your promises, this could open a lot of doors for you.
Likewise an LLC is an aspirational asset; one which will encourage you to do better and live up to the ambitions that it suggests.
So for both practical and purely aesthetic reasons, paying yourself via an LLC is definitely superior as an option for many freelancers; all you need is the willpower to get started.
