From BizReport, Kellan Jansen provides an excellent overview of the advantages and disadvantages of forming a limited liabilty company (LLC) if you are an independent contractor and resources to help you form and maintain an LLC. Companies engaging with independent contractors often prefer to engage with LLCs because contracting with an entity (as opposed to an individual) supports the classification of a worker as an independent contractor. Kellan explains some of the the advantages of forming a LLC for the independent contractor:
The biggest reason to create an LLC is to separate your personal finances and personal property from your business bank account. That way, if your business has financial issues with excessive business expenses, your personal tax return and assets won’t be impacted.
LLCs also offer potential tax savings and may reduce your self-employment taxes or income taxes. There’s also more flexibility overall with your business taxes, so you can enjoy the benefits of pass-through taxation without having to worry about double taxation when you pay taxes for your company.
Beyond tax purposes, it can also enhance the professional image of independent contractors to form a single-member LLC. Doing so enables sole proprietors to market a business rather than their own services, which has its advantages for business credibility.
As we’ve just mentioned, your business credibility will likely go up if you form an LLC. This is because a limited liability company typically looks more professional and reputable than operating as a sole proprietor.
Finally, it’s worth reiterating that you can save money on payroll tax returns, Medicare tax, payroll taxes, and more when you start an LLC. You can also avoid issues like double taxation while still benefiting from pass-through taxation on your personal tax returns. The net result could be that you pay less when you file taxes.
Read the rest of the story at LLC Independent Contractor: What Should You Know?