Should you incorporate? And if so, which entity should you choose?

When you first venture out on your own, you’re probably likely to set up your freelance business as a sole proprietor. And while this may be the easiest option to set up shop, it may not be the best.

There’s some great value in incorporating, including:

  • Tax benefits
  • Reduced chances of being audited by the IRS
  • Decreased liability

Liability, you ask? Yeah. Something you might not have thought about. But what happens if a client comes to your office and slips on the stairs? What if a client decides to sue you for missing a typo in their ad? While it’s very rare that anything like this ever happens, minimizing your liability for if and when it does is extremely important. Having a corporation limits your personal liability for anything your business does and gives you some (not complete) protection from lawsuits.

There is a one-time cost associated with incorporating. It may be a few hundred dollars, depending on where you’re incorporating. And while it offers a lot of protection, it is important to note that it is more expensive than running a sole proprietorship.

Why? Mostly because of tax preparation. It’s more complicated when you’re incorporated and is costly to have a professional prepare your taxes for you. While that expense is deductible as a business expense, it may not be right for you on a freelancer’s salary.

So, the question is … Do these expenses outweigh the benefits? If freelancing is something that you aspire to do (or are already doing!) as a career choice —meaning long term, then incorporation is definitely worth considering.

But which entity do you choose? An S-Corp? C-Corp? LLC? There are so many factors to consider, it’s best to discuss your options with an attorney and an accountant. They’ll be able to guide you in determining a business structure that’s right for you.

On that note, join Freelancers University on Wednesday, November 12th, as we bring in attorney Duncan McQueen to discuss Incorporation Basics – Starting Out on the Right Legal Foot. Class size is limited. Enroll today!

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