Benefits of Creating an LLC versus working as an individual?

[jendraiss]

Hi all,

I have been on Upwork for many years now, and have developed a regular clientbase as a freelancer. Given the amount of work I currently have, I'm toying with the idea of creating a sole-proprietor LLC, and was wondering if anyone had experience with this and if it would actually be worthwhile. Right now, I dread being hit with my tax bill at the start of every year, and am planning on doing a better job tracking my income so the amount owed isn't a surprise come tax season.

Are there major benefits to creating an LLC, rather than just working as an individual freelancer? Or, is it not worthwhile? I've had no issues working as an individual freelancer, so I'm not sure if it would be worth the extra time and effort.

Thanks!

Jennifer

[rainmaker1145]

Jennifer:

I'm not an attorney and do not give legal advice.  That being said, the reason people typically form a limited liability company is to provide a shield against personal liability relating to the discharge of duties owing to their work.  If you have personal liability for the consulting services you give that, in your opinion, constitutes a real risk issue on an ongoing basis, then a single person LLC is definitely an option.  There may be some marketing related advantage of doing so that is associated with Upwork but I am unaware of those issues, so you may wish to consider that potential benefit/risk as well.

Have a nice day.  Hope this helps you.

[dominick23]

Are there changes I need to make to my Upwork profile to gain the liability advantages of the LLC?

[b_yahiaoui]

Amazing news on your growing profile. I recommend setting up an LLC unless you can already claim all expenses related to your work. Meaning: Are you able to claim your internet, microphone, travel, insurance, healthcare, etc, as expenses against your income? if you cannot, then opening an LLC would allow you to do so. This way your tax bill reflects the real cost of getting the work done and you are only taxed on the income of the LLC. Note taking the money out of the LLC to pay yourself is a taxable event and will be considered personal income. Please consult with locals for state and federal law for one person LLC like yours and the best tax planning strategies.

[wlyonsatl]

Taking money out of an LLC to pay an owner for any reason is not typically a taxable event.

An LLC is a pass-through corporate structure for state and federal tax purposes. So, the owner(s) of an LLC have to pay quarterly estimated taxes on the LLC's net taxable income, whether or not the owner(s) take some, any or a lot of money out of the company. It is my understanding that beginning next year, freelancers above a certain level of income will also have to start paying quarterly estimated taxes, so that element of sole proprietorship versus LLC will soon be a wash - neither option will have a tax advantage over the other in that respect.

Your primary benefit of being an LLC is probably the limited liability element, but you must be very careful not to "pierce the corporate veil" by intermingling your personal finances with the LLC. Pierce that veil and limited liability may not apply for you.

These are just general thoughts by a non-lawyer. Be careful about advice from any freelancer who claims to be a capable lawyer - some such freelancers have shown themselves not to be very capable or well informed.

See a good corporate attorney to get reliable advice on these issues and your best choice for corporate structure.

[abdul920]

I did register INC. few months back, because of one reason.

• if you are a freelancer or employee, you pay taxes first and then do your expenses.
• If you are business owner, tax is aplicable on you profit, so earn some amount, you deduct the expenses, and then pay taxes.
  
  

I don't find it much useful beside this, until unless I have a team.