3 Benefits Of Forming An LLC For Freelance Writers
Being a freelance writer has its perks. Not only are you your own boss, but you also have plenty of control over how you manage your business. Nearly every freelance writer starts out as a sole proprietor, a status that has its fair share of pros and cons to contend with.
As you attract new clients and grow your business, you may want to consider forming a Limited Liability Company. An LLC not offers a step up from sole proprietor status, but you'll also benefit in ways that isn't possible as a sole proprietor.
1. LLCs Offer Asset Protection
As a sole proprietor, you're responsible for more than just your business. If an unsatisfied client decides to take legal action against you, you could find all of your personal assets at risk. Losing a legal battle could mean giving up your car, personal investments and even your home just to fulfill a judgment.
Forming an LLC places a barrier between your freelance writing business and any personal assets you own. In essence, any client that files a lawsuit against your business can only go after assets owned by your business, leaving your personal assets untouched.
Keep in mind that forming an LLC doesn't offer complete protection from every type of liability. Fortunately, there are several types of liability insurance policies that cover a broad range of claims. Media liability coverage, for instance, provides protection against claims based on plagiarism, copyright infringement, and other named perils.
2. Tax Benefits
Flexible taxation options are another way that forming an LLC can benefit your freelance writing business. Stepping up from sole proprietorship to an LLC means you can take advantage of two taxation options: pass-through taxation and corporate taxation.
With pass-through taxation, your freelance writing business will essentially be treated as a partnership. Since partnerships aren't subject to federal income tax, your business's tax obligations are instead passed on to you to be paid on your personal income tax return.
With corporate taxation, your freelance writing business will be taxed for its earnings based on the current corporate rate. You'll also be responsible for personal income taxes if you collect wages or a salary as the LLC owner.
You're not just limited to pass-through taxation or corporate taxation. You can also mix both structures to gain other taxation benefits. You should consult a seasoned tax attorney to better understand the benefits of these tax structures.
3. Clients Will Take You More Seriously
Gaining new clients as a freelancer can be tough. Many potential clients are simply skeptical of freelancers, plus there's the pervasive belief that the average freelancer isn't exactly "serious" about their work. The image of the freelancer as someone who's just in it to get a few extra bucks on the side is difficult to shake off.
Forming an LLC can help shake off the stigma that often comes with being a mere sole proprietor. Adding the vaunted "LLC" to the end of your business name adds value and reassurance in the eyes of potential clients. Some clients simply feel better about hiring a "professional" with an LLC instead of taking a chance on a sole proprietor.
Forming an LLC also makes it easier to charge the rates you want for your business. The perceived value behind the LLC status also increases your business's own value, making clients more willing to pay top dollar for your work. An LLC can also help screen out certain clients in search of work for lower rates.
Last but not least, forming an LLC can also change the perception of your business among your fellow colleagues and partners. Your new status may even open the doors to new opportunities that may not have been possible as a sole proprietor. If you're interested in forming a corporation, visit sites like MyCorporation.com for more information.