For many freelancers and those running small businesses from home, things start out pretty informal. You take jobs here and there or sell your items when you can and hope that you can keep building and building. But once you build things up enough, you start wondering if perhaps it is time to make things more official. One of the ways you can do this is by becoming an LLC. But is becoming an LLC right for you?
While that will vary from case to case, there are many benefits to becoming an LLC that might interest you. Check out some of them below.
LLCs can choose how they want to be taxed, either as a disregarded entity or as a corporation. With the first option, your LLC is taxed the same as personal income; this is often referred to as sole proprietor, but it is different for reasons we will get to next. The second has your income taxed as any other corporation would be. While you should speak with a CPA to determine which is best for you, the flexibility is a benefit no matter which way you go.
And what does that mean? It means that any members of the LLC, including yourself, cannot be personally held liable for business related debts or court rulings. This ensures that your personal assets cannot be seized if something goes wrong with the business, and for those opting for disregarded entity status as an LLC instead of sole proprietorship, this is the primary distinction between the two.
Becoming an LLC makes you seem more official, even if nothing much changes about your business. Doing this shows commitment to your work and a sense of professionalism. You may not think it is that big of a deal, but when it comes to continuing growth, it matters.