If you started your business by taking on a project here and there, you probably didn’t truly consider it a business in the beginning. But if you’ve fleshed out your client list and have continued to grow your business, it’s time to take yourself seriously: you now run a business.
But you probably still don’t feel like a business! After all, it’s just you working from home. That feels nothing like a corporate office with multiple employees. And yet, you are every bit as much a business as any other. And that’s why you must protect yourself.
An LLC (Limited Liability Company) protects you while maintaining a separate business structure for your freelance work.
Why Do You Need an LLC?
If someone were to sue you for work they didn’t like, your personal assets would be at risk. If you couldn’t pay the amount the court settled on, the court might decide to liquidate your assets, which could include your home, vehicles, or other high-dollar assets.
But on the other hand, if you set up your business as an LLC, the business becomes its own entity, meaning that your personal assets are protected. Likely, this will never be an issue for your freelance business, but isn’t that why we take precautions? Consider filing an LLC as insurance against this sort of headache.
You can continue to claim your freelance income on your personal taxes if you form an LLC.
You could also file as a corporation, for example, an S Corp, but in all honesty, a corporation might be overkill for your freelance business. An LLC doesn’t have the strict requirements that a corporation does, such as having a Board of Directors or filing paperwork each quarter.
Reassuring Your Clients
If you choose to operate under your name as a freelancer rather than setting up a DBA (“doing business as”) under a company name, having an LLC after your name can provide a level of comfort to potential clients that you’re professional and they can trust you with their money. There are many freelancers who turn out to not be reliable, so any level of trust you can create, you should take.
The choice is yours: you can continue to operate your freelance business as a writer, designer, or blogger under your name and risk the liability of losing personal assets, or you can take the steps to protect your business by filing an LLC.