Should I Form an LLC?

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Should I Form an LLC?

I work as an independent contractor and have made approximately 13,000 from that
job this year. I anticipate making around 20,000 next year doing the same type
of work. Should I form an LLC for tax purposes? I don’t want to get hit with a
huge tax bill at the end of the year, which is why I am considering it. Any
advice would help. Thanks.

Asked on November 22, 2017 under Business Law, California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 4 years ago | Contributor

An LLC does not have any tax benefit under current tax law: if you elect for "disregarded," "partnership," or "pass through" tax treatment (all these terms are used), the LLC is ignored ("disregarded)" and profits and losses (due to buiness expenses) go directly to your taxes and are taxed with your other income (and deductions). And if you elect "corporate" tax treatment, then profits get double taxed: once at the LLC level, then again if/when you take them out, as part of your income.
It is true that having a LLC can make it easier to document business expenses, show that they are *business* expenses and not personal, and so use them to offset income (as deductions), but legally, you an do the same with a dba--it's just that the LLC facilitates keeping business income and expenses separate from personal.
The advantage of an LLC, and the reason you should have one is to protect your personal assets (e.g. home, money in the bank) from most potential business releated debts or obligations or liability.


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