Is It Beneficial For Independent Contractors To Form LLCs?

December 25, 2020

Since independent contractors such as freelance writers and designers fill out 1099s every year, they are essentially their own businesses. If you are an established independent contractor considering whether or not to become a single member limited liability company (SMLLC), learn what benefits your Los Angeles accounting consultants want you to know about. 

Offers Limited Liability

By forming a business entity in the form of a SMLLC, you are protecting yourself from liability issues. This means if things go wrong with the client, that client cannot go after your assets, including those not related to work such as personal savings accounts and residences. With an LLC, your business becomes responsible for assorted liabilities and debts to protect personal assets. 

Helps Streamline Tax Preparations

Turning your business into an SMLLC means the IRS views you as either a general partnership or sole proprietor. Either way, corporate tax income and double taxation issues vanish. All you need to do is report profits and losses, and add a Schedule C document to your tax information. You might need to send quarterly income tax payments depending on your earnings, something your Encino tax consultants can assist with. You also have the option of having your business taxed as either a C or S corporation, a perk you will not enjoy as an independent contractor. 

Provides Additional Payment Options

As an LLC, you can accept more forms of payment from customers, such as credit card payments. It’s additionally possible to have payments wired to your business bank account so you can get the money faster. Many corporations will not wire money into personal bank accounts. 

Allows Business Bank Account Formation

By incorporating yourself as an LLC, you have the option of creating a business bank account. Having a separate account for all business dealings avoids trying to figure out which expenses were for personal and professional purposes at the end of the tax year. By keeping business earnings out of personal accounts, you minimize your risk of an audit. 

For more about LLC formation, make an appointment with Wallace and Associates, your Los Angeles accounting firm.