Comments on: Open Thread: Is Your Freelance Business Incorporated?

By: 10 Hidden Skills of Successful Freelancers « Paul D. Jacobs – Freelance Web Programmer

Wed, 19 May 2010 10:13:03 +0000

[...] a freelancer in essence becomes the owner of their own business. Whether making it official and incorporating or simply working as a sole proprietor, the responsibility of EVERYTHING that has to do with your [...]

By: tiernan

tiernan — Thu, 21 May 2009 16:46:43 +0000

As Dobes said in Canada there is about a $75k threshold before you save money on taxes by incorporating, is there an equivalent number in the US?

By: Dobes Vandermeer

Dobes Vandermeer — Sun, 16 Nov 2008 00:16:03 +0000

I’m in Canada and I incorporated my freelancing business (before I switch to making online accounting softwre) because there was a good savings on taxes. Here there is a flat 18% corporation tax until your corporate income exceeds $250k. Self-employment income follows the same sliding scale as employment income, so at some point it can be a lot more than corporation income tax. If you pay yourself using dividends, they are taxed differently than employment income, too, so you can save your accountant’s fees in taxes. You do have to earn ~$75k or more to benefit from this.

The liability issues were never a big deal for me, usually that’s all included in the contract anyway.

By: Melek

Melek — Tue, 11 Nov 2008 15:43:09 +0000

I finally hired a CPA last year and he encouraged me to form an LLC instead of what I currently was, a sole proprietorship. He also said that I needed to start using payroll to pay myself (I don’t have any employees). If you form an LLC and don’t get a paycheck, it’s a HIGH audit area for the IRS. So keep that in mind. I don’t have to pay estimated payments anymore, but, I will owe a lump sum at the end of the year, even tho some taxes are taken out from my pay check.

He also suggested I setup an Individual 401K, which was simple to do at Fidelity. As an LLC, i can now contribute employer money AND individual money into my 401K. That means, i can contribute MUCH more (Up to 24k I believe) than i could in a SEP IRA (only about $14k or so?).

At the end of the year when the CPA did my taxes, he ran the numbers on what I would have owed as a SP and what I owed as an LLC. I saved about $7,000!!

I feel much *safer* being an LLC. Like I have some form of protection…or at least more than I did as a SP. Also, having a CPA do my taxes is a HUGE burden lifted off my shoulder. One, bc I don’t have to spend the time doing them, and two, bc he actually knows what he’s doing! :)

By: Justin - YGG

Justin - YGG — Tue, 11 Nov 2008 15:09:59 +0000

We are incorporated, it makes things a lot cleaner as far as ownership and its not tied to me personally for legal reasons. We also own the brand as well, extra protection.

By: 1955 Design

1955 Design — Tue, 11 Nov 2008 15:02:05 +0000

I am a registered LLC in Michigan. Although I don’t understand the nuances nor the legal differences between an LLC and a Corporation, I can say that I have *never* been sent a 1099 by a client.

What am I missing?

By: milo

milo — Tue, 11 Nov 2008 08:04:54 +0000

Applied GmbH, german model similar to LLC. Allows to license and distribute your products in various markets worldwide.

By: James Chartrand - Men with Pens

James Chartrand - Men with Pens — Tue, 11 Nov 2008 01:29:14 +0000

@ Cheeky – You’re not obligated to incorporate under any circumstances whatsoever. It’s optional. Your earnings are irrelevant.

However, considering we have a six-figure business, it makes incorporation a *smart* thing to do. I know I have to. Just not looking forward to it, as it’s a yearly expense, a headache and a mess to navigate. Ugh.

By: CheekyMonkey

CheekyMonkey — Tue, 11 Nov 2008 01:24:29 +0000

@James: Any conversations I have had with Revenue Canada have indicated that if you earn less than $34K from your freelancing you are not required to incorporate. For those Canadian moonlighting freelancers who already pay the tax man from their full-time gig this is excellent. That being said, I would definitely take your accountants advice over mine, especially if freelancing is your full-time operation in which case you would likely cross that magic money threshold.

By: Matt Tuley, Laptop for Hire

Matt Tuley, Laptop for Hire — Mon, 10 Nov 2008 21:17:05 +0000

I set up shop as an LLC because:
1) it offers a level of protection–which, as a writer, I’m not too likely to need, but why risk it, especially since…
2) it was easy and not too expensive,
3) figuring taxes is straightforward and the hit only happens once (vs C-corp),
4) it enhances my professional image, making hiring me an easier sell for some of my larger corporate clients.

So, basically, what David Hepburn said, but for a different legal structure.