• Home
  • About First Venture Legal
  • Areas of Practice
  • Blog
  • Contact Us

First Venture Legal

Get a free consult

Is Incorporating Necessary for Freelancers?

August 4, 2015 by James Johnson Leave a Comment

Tweet

If you’re striking out on your own as a freelancer, you may be wondering if it is necessary for you to incorporate or form a LLC for your freelancer activities?

One of the main benefits of incorporation or LLC formation is the limited liability shield for the owner’s personal assets. However, limited liability does not extend to torts committed by you, so if you are negligent in performing your work, or if you get into a car accident while driving to a work-related matter, you are still personally liable even with a corporation or LLC. But limited liability can protect from other business liabilities, such as leases, loans, other debts, employment matters, etc. (assuming that such liabilities are not based on a theory of negligence). Of course, that protection is lost again if you personally guarantee liabilities like loans or leases.

Incorporating can also provide some tax benefits. It is possible for a freelancer to incorporate and then elect to be taxed as a S-corporation. That way, the freelancer can pay himself or herself both in salary and distributions — while salary may be subject to self-employment tax, distributions are not. However, you must take care not to pay yourself too much with distributions as opposed to salary, as the IRS looks out for business owners who pay themselves primarily with distributions in order to avoid paying self-employment taxes.

Finally, incorporating or forming a LLC can also make it slightly more likely to get hired. Companies are becoming increasingly wary of hiring independent contractors, as the IRS and federal and state departments of labor are beginning to crack down on misclassifications of employees as independent contractors. However, the fact that a freelancer has his or her own corporate entity that he or she performs their work through for multiple employers weighs in favor of an independent contractor classification.

Employment Issues, Entity Structures and Formation

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

(617) 600-6132

Site Disclaimer

None of the information presented on this site is intended or inferred to be or to be used as legal advice or as a substitute for legal advice, or is intended or inferred to create an attorney-client relationship. If you require legal advice or the services of an attorney, please contact First Venture Legal or another attorney for that specific purpose.

First Venture Legal and its attorneys claim no special training or expertise in any particular area of law. By accessing this site or its contents, either directly or through a third party, you acknowledge that you understand and accept the terms of this disclaimer. Thank you.

Copyright © 2023 · First Venture Legal · PO Box 410121 Cambridge , MA 02141 · Powered by ThriveHive