When I first started freelance writing full-time, I scheduled a visit with our accountant for some advice. One thing I wanted to know was whether or not I should incorporate my business. He said no at the time, but added that the situation might change as my business evolved.
But now, as we grow closer to the end of the year, I'm revisiting the idea as a real possibility for 2009. Right now I operate as a sole proprietor. One reason I'm considering incorporating is that the taxes I'd be required to pay for money earned by my company would be less than what I pay when I claim it as personal income. And I've also been thinking about it could protect my personal assets. If someone decided to sue a company I wrote web content or some other material for, I wouldn't be part of the lawsuit (I'm no lawyer, so I could be wrong about that part). But I already include a protection clause in my service agreement that states my clients own the material once it's paid for and release me from any responsibility. But is it enough?
Freelance writers in the United States have three options available if they want to incorporate a business:
C Corporation
S Corporation
Limited Liability
I'm leaning toward an LLC because I wouldn't need to create a board, elect officers and so forth. It seems to be the least complicated of the three. Is it necessary to incorporate? It may not be necessary, but as your business evolves, you should at least weight the pros and cons for yourself. Bonny Albo at Suite101 has done a god job of explaining things from small business perspective. Be sure to check it out for more detailed information.
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5 comments:
Great post! I just formed an S corporation for the very same reasons you mentioned. Now that I am growing, everything goes through the corporation and not me personally.
I'm glad you enjoyed the post, leighzaykoski. What made you realize it was finally time to incorporate your business?
I spoke with a financial planner who recommended that I do so to limit my liability and experience some of the tax breaks of having a corporation. It made sense, so I went ahead and did it. Bonus: Companies keep sending me free business books and other nifty items.
Yes,leighzaykoski, I'm really leaning towards those tax breaks. And I really do like freebies...
Just remember, an LLC is considered to be a "pass-through" entity by the IRS, which means you will still pay the same individual taxes, although the LLC entity will give you some legal protection as far as your assets are concerned. Another option the IRS allows is for an LLC to elect to be taxed as an S-Corp, which will give you some tax benefits.
IRS and S-Corps
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