The Freelancers' Blog

3 Reasons Why Incorporating Your Freelancing Business Today Will Make You More Money Tomorrow

Dec 20, 2020 4:55:53 PM / by SoleVenture

 

If you are a freelancer or contemplating a freelancing career or side hustle, one of the best investments you can make is to incorporate your business. It is a low-cost, easy way to take advantage of tax benefits, shield yourself from liabilities, and make yourself more marketable. Transforming yourself into an “official” business yields an excellent ROI that will result in more money in your bank account and more credibility for your brand. Read this short article to find out how.

  1. Incorporate to Save on Your Taxes.

Incorporating your freelancing business or your “company of one” is easy and inexpensive. There are several corporate structures that are suitable for self-employed individuals. In general, and depending on where you choose to incorporate, the decision is usually whether to incorporate as a Limited Liability Company (LLC) or as an S Corporation (S-Corp). Either structure can provide you with valuable tax benefits.

Like 95% of other U.S. businesses, if you incorporate your business as an LLC or S-Corp and you elect what is referred to a “S-Corp status,” profits will “pass through” the company and go directly to you. You can then declare that money on your personal income taxes. You can further reduce tax liability by monitoring legitimate business expenses and related write-offs and deductions. There are a number of these available, including write-offs or deductions for things like home office expenses, business meals, transportation, benefits, and more. By making the investment to incorporate your business, and by taking the time to understand how your taxes work, you will reap dividends in the long run. (Note that this article provides general information about the benefits of incorporating; it is not intended to provide tax advice specific to your particular situation.)

  2. Incorporate to Enhance Your Credibility & Branding. 

Incorporating as a business can give you more credibility and brand recognition with potential clients, professional networks, and even financial institutions. When you’re an “official” business, you create an image that projects legitimacy and authority. You’re likely more appealing to prospects than an unincorporated freelancer or gig worker. This applies across industries – wellness professionals, content writers, contractors, accountants, web developers, etc. (Think about it – if you are hiring a developer to build you an attractive and secure website, would you prefer to hire a random person off of one of the many freelance marketplaces or would you want someone with verifiable business credentials and a web presence? If you are hiring someone to care for an ailing relative would you rather hire a random person on Craigslist, or would you rather hire licensed and bonded (hypothetical entity) A+ Quality Home Help, LLC?)

In addition to the comfort and credibility that comes from being incorporated as a business, you have a better branding opportunity with your website, marketing materials, and social presence. Furthermore, if you are a legitimate business, you are likely going to be protected from having someone else in your state use your business name.

Lastly, some businesses and industries may prefer to work with other “businesses.” For example, lending institutions may prefer to work with an incorporated business versus a sole proprietor. These entities may hesitate to give an individual a loan or extend credit for business reasons.

  1. Incorporate to Protect Yourself & Your Loved Ones

When conducting your business through a legal entity versus simply doing business as yourself, you are helping to protect your valuable assets from legal judgments and company debts. It is generally going to be the entity – and not you individually – that is responsible for legal damages and debts. When incorporated properly, you can operate your business without the fear of losing your home and your savings because of your company’s legal liabilities. While this doesn't necessarily "make" you more money in the short-term, it could save you considerably in the long run.

For the reasons detailed above, incorporating your freelancing business provides a potentially great return on a small financial investment. Forming your business entity is an easy and inexpensive process that can be accomplished in minutes. Check out SoleVenture and form your business today.

 

 

Tags: Freelancer, Lessons, 2021, Taxes, Incorporate, Form Your Business, Business of One

Written by SoleVenture