While freelancing can take many different forms, one of the most common pursuits is freelance writing. Working in written content creation is fun, accessible and rewarding.
However, any time a gifted blog writer or even a talented freelance editor finds success, they face an important question: should they form an LLC?
What Does a Single-Person LLC Look Like?
When individuals are freelance writers and report their income on their personal taxes, they’re operating as a sole proprietorship. According to the IRS, this is simply “someone who owns an unincorporated business by himself or herself.”
The Small Business Administration describes a sole proprietorship as a way to work with no distinction between yourself and your business. It adds that this is “the simplest and most common structure chosen to start a business.”
However, if you find success and generate a lot of income as a freelancer, you may want to consider an LLC form of business creation. If you do this, you create an official business structure that goes between you and your clients. This structure (or limited liability) is an added layer of protection against personal liabilities related to your writing work.
If you’re the only person in your LLC, you can even create a single-member limited liability company (SMLLC). An SMLLC allows you to operate as a single-owner business with the legal and professional advantages it brings. At the same time, for all intents and purposes, an SMLLC continues to mimic the tax structure of a sole proprietorship.
Forming an LLC as a freelance writer can seem like a no-brainer on the surface. However, there are quite considerations that you should weigh before making the decision.
The Pros of Forming an LLC as a Freelance Writer
There are many positive aspects to forming an LLC as a freelance writer. Here are a few of the most obvious ones:
No Mass SSN Distribution
As a freelancer, you sign many contracts and onboard onto many different workspaces. This can lead to your Social Security number spreading out across a lot of different professional platforms.
By creating an LLC, you get a separate employee identification number (EIN) that serves as an SSN equivalent for your company. It is public information, so there’s no need to fear that it will be stolen when you use it often. Using an EIN avoids the need to distribute your personal information more than is necessary.
There are many ways to handle taxes as a freelancer. If you opt for an LLC business structure, it can help you separate your business and personal income and expenses.
In addition, if you choose to set your LLC up as an official corporation — or even go a step further and set up an S Corp — you can avoid heftier self-employment tax rates.
If you have an LLC set up, it functions as an official business that you don’t just own. You also work for your company.
This means that any time you don’t have a client (i.e., you have a gap in work), it’s your business that doesn’t have work. You, on the other hand, remain happily employed the whole time.
Sure, this doesn’t fix the fact that you need to maintain clients to keep up your income. But it can avoid the uncomfortable look of a gap in employment on your resume.
The Cons of Forming an LLC as a Freelance Writer
There are some significant positives to forming an LLC for your freelance writing career. However, these are at least partly offset by some legitimate cons.
The Cost of an LLC
LLCs aren’t free. In fact, some hefty expenses can come with setting up an LLC.
These tend to vary from one state to the next. It’s estimated that the cost of starting an LLC can be as low as $50 and as high as $1,000.
In addition, depending on how you set up your LLC, you may have to file a separate tax return. At times, this can be worth it for tax purposes, but it’s still another cost worth counting before you commit to anything.
You’re a freelance writer. You write. That’s what you do. But if you set up an LLC, you’ll also be taking on a significant administrative responsibility that isn’t necessarily there if you operate as a sole proprietorship.
An LLC requires various extra steps to maintain. For instance, tax time can be trickier. There may be yearly forms you need to fill out, too. Keep these added duties in mind.
Multiple Member Turnover
An LLC can provide a streamlined and simple experience. If you opt to start an LLC with a partner, you can reduce the work even more since you can share the load.
However, if you operate as a multiple-member LLC, you also open up the door to greater complexities when one of you wants to move on. Even if you start your company with a spouse or a close friend, if you end up parting ways in the future, you’ll need to hop through various legal hoops to restructure the LLC correctly.
To Incorporate or Not to Incorporate — That Is the Question
Freelance writing is much more than creating content. You need to find clients, create invoices, pay yourself, and generally ensure that the business side of things stays up and running.
An LLC can bring a sense of structure to your freelance writing business that has a lot of benefits. At the same time, it can also take significant amounts of time, effort, and resources.
Forming an LLC may be the right option for your growing freelance career. Just make sure that you go into the process with both eyes open. It also doesn’t hurt to find a good accountant and a lawyer you trust that you can go to if you have any questions along the way.
If you’re interested in learning more about a career as a freelance writer on a high level, check out our PowerPublish blog. It’s full of targeted content that can help you find your niche, perfect your craft, and take your career to the next level.