united-states, taxes, llc, consultingLLC provides limited liability, but it also costs money. Here in California, USA, there’s a minimum amount of $800 that an active LLC must pay in tax. Despite this, many people who do consulting have LLC companies registered, even if they’re a one-person consulting service. What is the benefit of doing that?
The advantage in general of an LLC, regardless of company size, is where you’re putting your liabilities. If your business does something wrong (say, botches a data transfer), it’s generally a nice idea to have it get sued for that and not you, yourself.
On the other hand, from a tax perspective, the IRS allows single-person LLCs to be taxed either as corporations or as sole-proprietorships. If you do the latter, your business income can be taxed as personal income, which makes it basically the same as not having the LLC at all.
Really, having an LLC is worth it if you can afford it. It’s pretty cheap to register and maintain one, so you’ll probably benefit more than you lose. Not to mention, calling yourself an LLC will likely have some major marketing benefits, particularly as a consultant. It just sounds more official, and I bet people will like that.
Its all about liability. As an LLC, only the company can be sued, but your personal assets are safe. If you are making a lot of cash, then registering an LLC is definitely worth it.
The typical reasons for an LLC are limited liability, accounting clarity, and future growth.
It is true that LLC members generally have limited liability. However, in the case of single-member LLCs, it could easily be the case that this liability would not be very helpful or may in some cases be entirely pierced. This question is not widely settled, but you should not lean heavily on the limited liability of the SM-LLC without getting appropriately educated about the laws in your state, including a knowledgeable lawyer if you can afford it. Moreover, since you are actually the one performing the services that would get the LLC sued, limited liability won’t necessarily apply to you personally.
If you do register an entity, it may prompt you to be more careful about your accounting and to track things separately - even getting bank account, FEIN, and other information for your LLC. This structure helps some people keep their business affairs separate. If you are dabbling in multiple ventures, then an LLC may be helpful for this reason. There is no particular reason you need an LLC for rigorously separate accounting, but it may be helpful. Note that failure to separate your accounting from the LLC accounting is often cited as a reason to pierce the veil and strip owners of limited liability (if your finances are not separately identifiable, then your liability may not be separate).
Finally, if you plan to grow this business - hire employees, rent space, take out ads, file entity taxes, or take on partners or investors - then obviously an entity is an important part of that strategy.
All content is licensed under CC BY-SA 3.0.