Compelling Reasons for Freelancers to Form an LLC

I’ve been freelancing as a writer and designer for three years now, taking on various clients and managing my own websites. The flexibility of this job has been life-changing for me. I love choosing the projects I work on and knowing that my hard work directly benefits me.

I used to think freelancing was low-risk when it comes to liability, but a friend of mine, a freelance journalist, got sued for defamation over an article she wrote. The contract specified she was responsible for any legal claims, not the site she wrote for. After months of legal battles, she lost her home. This eye-opening experience led me to protect myself by forming a limited liability company (LLC).

An LLC is a simple, state-level business structure that separates your personal assets from your business liabilities. Without an LLC, the government considers your freelance work as an extension of you personally, meaning any liabilities incurred through work could impact your personal assets, like your home or car.

By forming an LLC, you’re no longer personally responsible for the business’s debts or legal issues. Instead, as an LLC member, your personal assets are protected. However, for an LLC to be effective, you must keep your business and personal finances separate. Set up a separate bank account for your LLC and ensure wages or dividends are paid into your personal account. Failing to do this could allow a savvy lawyer to bypass your LLC’s protections.

Creating an LLC is pretty straightforward and affordable. You need to file your Articles of Organization with your state government and pay a small fee, typically around $100. It’s crucial to get your Articles of Organization right because this document outlines how your company will operate and limits your liability. Consulting a legal professional for this step is a good idea.

An LLC offers tax flexibility, too. You can choose to pay taxes through your personal return or opt for corporate taxation, which might benefit you if you earn a significant amount or could take advantage of corporate tax breaks. Just make sure all your paperwork is accurate to avoid issues with the IRS.

Another perk of forming an LLC is the chance to create a business name, which can enhance your credibility and make you seem more established. This is especially beneficial in fields like design, where presenting yourself as part of a company can be a major plus. However, for writing gigs, I often downplay the company aspect since it can sometimes deter potential clients.