Should I Form an LLC?

UPDATED: Oct 1, 2022

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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


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 5 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.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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