Though there are plenty of freelancers that have real success in running a totally bootstrapped business without ever thinking about how to structure it legally, there are a couple of big benefits freelancers would enjoy by incorporating their operation.
Legal protection and taxes being the biggest of the bunch!
At the same time, though, there’s no “one-size-fits-all” approach to incorporating as a freelancer.
You really need to be smart, strategic, and savvy about how you build your business from the ground up, particularly when you are going through the articles of incorporation process.
Below we run through a couple of different things you want to think about when zeroing in on your choice, hopefully shining a brighter light on the subject so that you can feel totally confident moving forward.
As always, though, advice from a total stranger online is never going to beat getting in front of a legal professional that specializes in helping freelancers incorporate their operation. Getting their advice is always a good idea!
Legal Liability Protection is a Key Consideration
Right out of the gate, the legal liability protection freelancers enjoy when they decide to incorporate is a huge fit, and a big driver of why so many freelancers decide to incorporate in the first place.
It’s no secret that we live in a particularly litigious business environment right now.
It only takes one disgruntled customer to tank your business, cripple you with mountains of legal debt, and bury you up to your eyeballs in liability issues that you may not (at the end of the road) even be responsible for – but by then it will be too late!
Limited Liability Corporations (LLCs) and S Corporations provide significantly more protection in this department than a sole proprietorship will. If you’re looking for liability protection, an LLC or an S Corp may be the way to go for you .
Proper Tax Planning Will Point You in the Right Direction, Too
Of course, getting legal liability protection is just one piece of the puzzle when you’re looking to better protect and secure your freelancer business (and your financial future).
Another big reason to make the decision to incorporate is to improve your tax situation, legally, ethically, and responsibly protecting more of your income with the right legal entity structure without having to run afoul of the IRS.
The income that you bring in, the revenue that you generate, and where your business is incorporated will all have a huge impact on whether or not the LLC or S Corporation route is the right way to go when you want to improve your tax situation.
As a general rule, though, the tax benefits of a well-structured S Corp are going to outweigh those that a standard LLC brings to the table (though the difference may not be as significant as you are expecting).
LLCs Should Be Every Entrepreneur’s Jumping Off Point
At the end of the day, the overwhelming majority of freelance operations thinking about incorporating would benefit from forming an LLC rather than moving forward as a sole proprietor or putting in all the work, energy, effort (and money) into building an S Corporation.
Obviously, an LLC isn’t a “one-size-fits-all” kind of approach – and your situation maybe better suited to either of the other two options we highlighted throughout this guide – but LLCs are easy enough to form, inexpensive enough to maintain, and offer fantastic legal and tax benefits as well.
On top of that, morphing an LLC into either a sole proprietorship or an S Corp is relatively simple and straightforward to pull off as well if you need to shake things up with your corporate structure later down the line.