1099 Workers Should Register for LLC’s; Here’s Why

 

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A lot of 1099 workers hear the term “LLC” and get intimidated. It makes sense–an LLC is a corporation comprised of members or a single member LLC, which most states allow. It is defined as a partnership between a group of people. So if you’re an individual freelancer, how can you be considered a corporation? It seems like a big, daunting task–but registering as an LLC can actually be a huge benefit when it comes to retaining more of your profits, paying your taxes, and claiming your assets. We sat down with a tax accountant to figure out exactly why:

  1. As an LLC, you qualify as a pass-through entity*.

    this means that, to avoid double-taxation, you don’t have to pay taxes on business income. While you still pay taxes on your salary, your remaining earnings become profit. According to our expert, when you register as an LLC, you also don’t pay Social Security and Medicare taxes–which in total amount to approximately 15% of your net earnings**. 


  2. Your personal assets as a member of an LLC are not only exempt from taxation, but are also shielded from most lawsuits.

    That means that if your business fails, your personal assets are legally protected and can’t be used to settle your business debts. This could also apply for unruly employees, nutty business partners, and any of the other thousands of things that can go wrong when you’re a small business owner.


  3. When you register as an LLC, your management structures can be a lot more flexible in comparison to corporations.

    While members of an LLC must control the actual business, they can choose to do this in any way they see fit–including delegating to managers, who don’t necessarily have to be members of the LLC. This means you can have a hands on or hands off approach to directing your hustle–it’s up to you.

While an LLC may seem intimidating, registering as one when you’re a 1099 worker can come with a wide range of benefits. If you’re a freelancer trying to save on expenses, protect your personal assets, and create a flexible work structure, registering as an LLC might be the solution.

* According to the Tax Policy Center, “Most US businesses are not subject to the corporate income tax. Rather, profits flow through to owners and are taxed under the individual income tax. Pass-through businesses include sole proprietorships, partnerships, and S corporations. The share of business activity represented by pass-through entities has been rising in recent decades.”

** According to the IRS, the total for social security withholdings is 12.4% and a 2.9% total for Medicare. 


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Mariam Helmy