united-states, legal, business-registrationI work full-time, but I have been doing a good amount of freelance consulting on the side. Basically, at an hourly rate in exchange for a service - much of this remote or via phone. I am the only person involved and I would like to separate my side-income from my full-time income for tax reasons and for the ability to write-off deductions related to consulting. The last requirement of the entity would be some level of protection/separation of my personal assets from business liabilities (e.g. lawsuit, damage caused by consulting). Any input is appreciated.
Location: Georgia, United States
You have not provided country you are operating in so I will answer how it works in UK (I would guess that in other countries systems will be similar).
Firstly you want to create LLC to and get some insurance in case you cause damages and someone tries to sue you. Liability insurance for company here costs around ~£200 per year for one million liability in IT sphere, if damages get over it you close LLC and open new one (bankruptcy).
Next thing you want to do is minimise the amount of taxes you pay. You can do this by getting two types of shares (type A and type B). Then you can give type B shares to your wife and pump payouts out of company as dividends up to £40k into her account (until higher tax rate starts). Then fill in your share up to 40k. You will be paying corporation tax which is 20% and it overlaps with 20% you would pay normally as lower rate income so essentially you only pay 20% corporation tax and noting more.
You have asked to do two things:
In the US, you can operate your side business as a sole-proprietorship (no incorporation) and take associated tax deductions (home office, phone, expenses, etc.). You can, of course, also incorporate (LLC may be best) so you can determine whether to have the LLC income be taxed as pass-thru income, or as a corporation.
For legal protection, however, you would need some form of corporate entity – or you should make sure that the agreement under which you work has the customer agree that accept your work without recourse. (An LLC could provide the former protection.) If you are concerned about liability, you may also want to look at obtaining business insurance for such issues (your home owners + umbrella policy may also be able to handle potential claims up to $1M .. or your umbrella limit).
All content is licensed under CC BY-SA 3.0.