Freelancers like the idea of working for themselves. So the idea of setting up a small business feels a bit strange. You want to be a lone wolf, not tied to a company.
It turns out, though, that millions of freelancers are hopping on the LLC bandwagon. They’re discovering that it offers all kinds of legal and economic benefits – and it’s surprisingly simple to do.
Here’s what you can expect when you switch from being a sole trader to this new kind of business model.
You Can Open A Business Bank Account
Having a business bank account is a big deal. It means that you can funnel all your corporate transactions through a separate account instead of using your own. What’s more, it makes it much easier to keep track of your business income and keep it separate from income you generate from other sources.
Take profits, for instance. When you run a business, the government will usually tax these at a different rate from personal income. In many cases, you’ll discover that you’re better off overall.
Business bank accounts are also helpful for managing expenses. You can run all your costs through a single account instead of mixing them with your day-to-day living expenses in a personal account.
Lastly, business bank accounts let you build a special form of business credit. This means that, over time, the ability of your company to go into debt increases. Having credit available may help you in some circumstances.
You Get Access To Tax Reductions In Inputs
Let’s say that you’re a regular freelancer. You can deduct the costs of doing business from your taxable income, but you’ll still have to pay most duties. However, if you switch to an LLC, you can often get access to products at a much lower rate of tax, as explained by this website. For instance, if you rely on vehicles, you may be able to use red diesel legally, bringing down your total expenses.
You Can Separate Personal And Business Finances
Technically, you can run all your expenses and income through a single account. However, accountants don’t recommend it. It makes filing difficult and it makes it hard for creditors to see the difference between your personal and company assets. Remember, when you open a corporation, you have a corporate shield. Even if your business fails and you owe people money, they can’t usually take your personal assets.
You Have A Better Image
Unfortunately, some customers view freelancers as flaky and low quality. It’s not true of course, but that’s a general perception. However, simply changing your firm’s legal structure can change that. Calling yourself “Amanda Smith Ltd.” sounds much more professional to the average customer than just “Amanda Smith.”
In some industries, you actually need to form a limited company before you can take on certain types of work. Contractors, for instance, might insist on limited liability companies as subcontractors on construction projects.
In summary, if you are a freelancer, setting yourself up as a limited company offers many benefits. It is well worth exploring with your accountant to see if it might improve your financial position.
