Should An Independent Contractor Form An LLC?

LLC limited liability company


From The Huffington Post, Deborah Sweeney recommends forming an LLC if you are an independent contractor.  Deborah writes:

The onus is on the independent contractor to put their clients at ease, and forming an LLC is a good way to do that because it clearly shows you’re running a business, rather than just working for another company.

Doesn’t Overly-Complicate Taxes

Unless told otherwise, the IRS treats LLCs as sole proprietorships or general partnerships for tax purposes. That means anything the LLC earns flows through it, directly to its owner(s). There’s thus no need to worry about double taxation or corporate income tax. When you file your returns, you simply attach a Schedule C, like you would if you were a sole-proprietorship, to report any profits or loss. Depending on how much you earn, you may also have to send in quarterly estimated payments — it’s a good idea to speak to a professional or use an accounting service to help you understand your obligations.

Limits Liability

It normally doesn’t take that much initial capital to get an independent contracting business up and running, but turning your business into an LLC does limit your liability for any ensuing suits or disputes. Effectively, forming an LLC turns your business into its own, separate entity. That way it’s liable for its own debts and obligations. You have a duty to see those obligations fulfilled, but forming an LLC sort of puts your personal assets into a little protective bubble, so they normally won’t be seized to pay for the company’s debt.

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