After years of working in-house and building up my skills and portfolio, I’m finally ready to put together a personal brand identity and start freelancing. I have a general plan, but I also have a few questions that I wanted to put out to seasoned freelancers.
When to start an LLC? I want to operate as an LLC to reduce my liability and to separate business finances from personal. When should I do this? Should I do it now so I can buy business assets and write them off (fonts, computer, monitors, etc.)? I know that I may not generate revenue for a while, so I’m not sure when an LLC makes sense.
You’re in the US, but regulations vary from one state to the next. Even so, they’re all similar.
I’m not an accountant, so I’m just passing along my experience, which you probably SHOULD NOT take as fact.
In my state, it’s easy to register an LLC online. It costs a few dollars, and there’s a form or two to fill out, but that’s about it. There’s no penalty of any kind for registering it now. Doing so will only mean that you’ll need to renew it earlier than if you wait. The registration in my state.is good for one year. Renewing it means getting online and paying a small fee each year.
Keep in mind that you’ll need a separate business checking account to keep your finances separate from your personal finances. Depending on where you live, you might need a business license too. And then there’s the quarterly estimated tax payments…
In the U.S., you have a choice of filing a separate income tax return for the LLC or just including everything in your personal taxes. For a freelancer, the latter usually makes more sense. Whether you register the LLC now or when you start bringing in money makes no difference unless you’re filing separate tax returns. If you’re filing a separate tax return for the LLC, you can’t deduct things purchased before the LLC existed, but you could still claim them on your personal tax forms. If you combine the LLC taxes with your personal taxes, it makes little difference when you bought the equipment during the year.
However, there’s this standard deduction thing, which, for a freelancer, can make all those business-related expenses irrelevant unless those itemized expenses exceed the standard deduction. It’s too complicated to explain here, but here’s a link.
Have you started to take on clients as a freelance business?
Personally I’d become an LLC before taking on any clients. I’ve been in this industry so long now, I’ve come to see that suing other people, and being sued is all part of business. Most of the instances I know have been amicable, mostly involving warranty issues, but still, you don’t want that kind of thing landing on your personal credit rating.
Sometimes people get blindsided. Maybe that stock image you used had a trademarked logo in it. Or there was an estate behind some dead person’s image, or the prints you ordered came out all wrong and you missed the delivery deadline for an important client meeting. This business is all about other people’s bottom line and if they don’t do as well as they expect they should, they may go looking for someone else to blame.