{"id":119892,"date":"2020-10-27T10:45:08","date_gmt":"2020-10-27T10:45:08","guid":{"rendered":"https:\/\/blog.finxter.com\/?p=15713"},"modified":"2020-10-27T10:45:08","modified_gmt":"2020-10-27T10:45:08","slug":"freelance-developer-llc-is-it-smart-for-you","status":"publish","type":"post","link":"https:\/\/sickgaming.net\/blog\/2020\/10\/27\/freelance-developer-llc-is-it-smart-for-you\/","title":{"rendered":"Freelance Developer LLC \u2014 Is It Smart For You?"},"content":{"rendered":"<p><strong><em>Should you create an LLC as a freelance developer?<\/em><\/strong><\/p>\n<p>In this article, you&#8217;ll learn about which clothes your <a href=\"https:\/\/blog.finxter.com\/the-complete-guide-to-freelance-developing\/\" title=\"The Complete Guide to Freelance Developing\" target=\"_blank\" rel=\"noreferrer noopener\">freelancing business<\/a> should wear. Make no mistake&#8212;choosing the right business entity matters. And informing about this question by reading articles like this one may be one of the most important decisions in your professional life.<\/p>\n<p><em><strong>Disclaimer<\/strong>: I&#8217;m not an accountant but a programmer&#8212;so, you should consult with your accountant or lawyer before taking any conclusive action!<\/em><\/p>\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\">\n<div class=\"wp-block-embed__wrapper\">\n<div class=\"ast-oembed-container\"><iframe loading=\"lazy\" title=\"Freelance Developer LLC \u2014 Is It Smart For You?\" width=\"1400\" height=\"788\" src=\"https:\/\/www.youtube.com\/embed\/XvRlBrTlrls?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture\" allowfullscreen><\/iframe><\/div>\n<\/div>\n<\/figure>\n<h2>Definition LLC<\/h2>\n<p><em>&#8220;A limited liability company (LLC) is a business structure in the United States whereby the owners are not\u00a0personally liable for the company&#8217;s debts or liabilities. Limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship.&#8221; (<a href=\"https:\/\/www.investopedia.com\/terms\/l\/llc.asp\" target=\"_blank\" rel=\"noreferrer noopener\" title=\"https:\/\/www.investopedia.com\/terms\/l\/llc.asp\">source<\/a>)<\/em><\/p>\n<p>So, if you create an LLC, you are generally not liable for any debt or liabilities of your freelancing business. Most likely, your freelancing business doesn&#8217;t need a lot of debt&#8212;after all, you&#8217;re selling your time for money&#8212;however, there may still be liabilities! <\/p>\n<p>For example, you may have signed a contract that requires you to pay for all damages incurred by your software. Yes, you shouldn&#8217;t have done it&#8212;but assuming you have, if you signed in the name of the LLC, you personally cannot be hold accountable for the potentially devastating liabilities.<\/p>\n<h2>Pros vs Cons Table<\/h2>\n<p>What are some advantages and disadvantages of a liability?<\/p>\n<figure class=\"wp-block-table is-style-stripes\">\n<table>\n<thead>\n<tr>\n<th>LLC Pros<\/th>\n<th>LLC Cons<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td><strong>Limited Liability<\/strong> &#8211; If you keep your finances separate and fullfil your duties as a business owner, you cannot be personally held liable. Your personal assets like real estate, stocks, bonds, mutual funds will remain protected even if your business fails.<\/td>\n<td><strong>Limitations of Limited Liability<\/strong> &#8211; this is called &#8220;piercing the corporate veil&#8221; and it means that if you don&#8217;t follow the rules of the LLC, a judge may decide that your liability protection will be removed and you, personally, can be held liable.<\/td>\n<\/tr>\n<tr>\n<td><strong>Pass-Through Federal Taxation on Profits<\/strong> &#8211; Per default, the profits are not taxed on the company level but are passed through to its owners who then tax them individually. This is an advantage if you have a relatively lower tax rate and it avoids double taxation on the corporate and individual level.<\/td>\n<td><strong>Self-Employment Tax<\/strong> &#8211; Per default, you must pay self-employment taxes on the profits of an LLC because it is a pass-through entity.<\/td>\n<\/tr>\n<tr>\n<td><strong>Management Flexibility<\/strong> &#8211; The LLC can be managed by one or more owners. This is a perfect structure for partnerships where ownership percentages can be divided in a flexible way.<\/td>\n<td><strong>Turnover <\/strong>&#8211; If an LLC partner dies, goes bankrupt, or leaves the company, the company will be dissolved. You need to create a new one and you take over all the leaving partners&#8217; obligations that result in dissolving the LLC.<\/td>\n<\/tr>\n<tr>\n<td><strong>Easy Startup Overhead<\/strong> &#8211; It&#8217;s relatively simple and cheap&#8212;a few hundred dollars&#8212;to start an LLC. For the amount of protection it offers, it&#8217;s a very cheap way to organize your freelancing business.<\/td>\n<td><strong>Investments <\/strong>&#8211; It&#8217;s difficult to raise outside capital. This is usually not a problem for you as a freelance developer because freelance developing has only minimal capital requirements.<\/td>\n<\/tr>\n<tr>\n<td><strong>Unproportional Profit<\/strong> <strong>Distribution <\/strong>&#8211; Members can receive profits that are not proportional to the ownership percentage they hold. This allows you to reinforce members for great work.<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><strong>Credibility <\/strong>&#8211; Being an LLC gives you more credibility as a freelance developer. Clients tend to trust you more, as a freelance developer organized in an LLC, for two reasons: you&#8217;re an US-based business and you&#8217;re a serious business. <\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/figure>\n<p>Sources: <\/p>\n<ul>\n<li><a href=\"https:\/\/www.nerdwallet.com\/article\/small-business\/starting-successful-llc\" target=\"_blank\" rel=\"noreferrer noopener\">https:\/\/www.nerdwallet.com\/article\/small-business\/starting-successful-llc<\/a><\/li>\n<li><a href=\"https:\/\/grasshopper.com\/resources\/jump-starting-and-growing-your-business\/nuts-and-bolts\/\" target=\"_blank\" rel=\"noreferrer noopener\">https:\/\/grasshopper.com\/resources\/jump-starting-and-growing-your-business\/nuts-and-bolts\/<\/a><\/li>\n<li><a href=\"https:\/\/fitsmallbusiness.com\/pros-and-cons-of-an-llc\/\" target=\"_blank\" rel=\"noreferrer noopener\">https:\/\/fitsmallbusiness.com\/pros-and-cons-of-an-llc\/<\/a><\/li>\n<\/ul>\n<h2>Freelancer LLC Taxes<\/h2>\n<p>An LLC isn&#8217;t a federal tax designation but there&#8217;s a <em>pass-through federal taxation on profits<\/em>. This means that in most states, LLC aren&#8217;t taxed at all but the individuals who own them are. In other words, your tax designation is that of a <em>disregarded entity<\/em> that files taxes the same as a sole proprietor.<\/p>\n<p>As a freelance developer, you probably don&#8217;t want to leave a lot of profits in the business, so the fact that it is pass-through doesn&#8217;t bother you at all. If you would like to build a business machine based on smart reinvestments of profits, feel free to read <a href=\"https:\/\/blog.finxter.com\/freelance-developer-tax-guide\/\" target=\"_blank\" rel=\"noreferrer noopener\" title=\"The Unofficial Freelance Developer Tax Guide [for Hackers]\">my detailed article about the topic <\/a>or watch the following video:<\/p>\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\">\n<div class=\"wp-block-embed__wrapper\">\n<div class=\"ast-oembed-container\"><iframe loading=\"lazy\" title=\"The Unofficial Freelance Developer Tax Guide [for Hackers]\" width=\"1400\" height=\"788\" src=\"https:\/\/www.youtube.com\/embed\/T_5YeRE3VD8?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture\" allowfullscreen><\/iframe><\/div>\n<\/div>\n<\/figure>\n<p><strong>Sources:<\/strong><\/p>\n<ul>\n<li><a href=\"https:\/\/www.fundera.com\/blog\/freelance-llc\" target=\"_blank\" rel=\"noreferrer noopener\">https:\/\/www.fundera.com\/blog\/freelance-llc<\/a><\/li>\n<\/ul>\n<h2>Freelancer LLC or Sole Proprietorship<\/h2>\n<p>Sole proprietorship is the freelancer&#8217;s default business entity. If you don&#8217;t explicitly form an LLC or corporation, you&#8217;ll automatically operate as a sole proprietor. The main advantage of LLCs compared to Sole Proprietorships are that you&#8217;re generally not liable for debts or liabilities of your freelancing business. This protects your personal assets and reduces the likelihood of a personal bankruptcy in case of unforeseen liabilities that happened because of your business activities.<\/p>\n<p>You can read more about the best legal entity for your freelancing business <a href=\"https:\/\/www.collective.com\/blog\/business-setup\/the-best-business-entities-for-freelancers\/\" target=\"_blank\" rel=\"noreferrer noopener\" title=\"https:\/\/www.collective.com\/blog\/business-setup\/the-best-business-entities-for-freelancers\/\">here<\/a>.<\/p>\n<h2>Freelancer LLC or S-Corp<\/h2>\n<p>Per default, single-member LLCs are automatically taxed like sole proprietors as pass-through entities. The business isn&#8217;t taxed but you are. The S-Corp is just an alternative way you can choose to get taxed: You ask the IRS to tax your single-member LLC as an S-Corp.\u00a0As a result, you don&#8217;t have to pay self-employment taxes anymore&#8212;but only income taxes on the corporate profits. This has a few advantages such as the tax deductability of the self-employment tax from corporate profits and the possibility to tax only a smaller portion of the overall profits. <\/p>\n<p>You can read more in this excellent article:<\/p>\n<p>Source: <a href=\"https:\/\/www.collective.com\/blog\/business-setup\/llc-vs-s-corp-which-is-the-best-for-freelancers\/\" target=\"_blank\" rel=\"noreferrer noopener\">https:\/\/www.collective.com\/blog\/business-setup\/llc-vs-s-corp-which-is-the-best-for-freelancers\/<\/a><\/p>\n<h2>Freelancer LLC Names<\/h2>\n<p>As a freelance developer, you need to decide on a business name. There are two types of restrictions: First, you cannot choose names that are already trademarked&#8212;or that are similar to trademarked names. Second, you cannot choose names that are already taken by other businesses. If you choose your business as your personal name, you usually don&#8217;t run into any legal problem. <a href=\"https:\/\/www.freelancermap.com\/blog\/naming-freelance-business\/\" target=\"_blank\" rel=\"noreferrer noopener\" title=\"https:\/\/www.freelancermap.com\/blog\/naming-freelance-business\/\">Some people <\/a>argue that this can harm your scalability or prospects to sell the business. However, as a freelance developer, this is usually not a problem as you&#8217;d create a separate business for more scalable ventures anyways.<\/p>\n<h2>Delaware LLC Freelancer<\/h2>\n<p>Can you create a Delaware corporation as a freelance developer? According to international tax lawyer<a href=\"https:\/\/www.quora.com\/Can-a-non-resident-freelancer-incorporate-his-business-in-Delaware\" target=\"_blank\" rel=\"noreferrer noopener\" title=\"https:\/\/www.quora.com\/Can-a-non-resident-freelancer-incorporate-his-business-in-Delaware\"> Jason Knott<\/a>, the answer is:<em> &#8220;Yes, a nonresident can form an entity in Delaware or almost any other state in the U.S.&#8221;<\/em> If you succeed as a freelance developer creating a Delaware LLC, you reduce or even eliminate your income tax burden. However, this can be a complicated legal procedure and you should definitely seek expert advice.<\/p>\n<h2 class=\"wp-block-block\">Where to Go From Here?<\/h2>\n<p>Enough theory, let\u2019s get some practice!<\/p>\n<p>To become successful in coding, you need to get out there and solve real problems for real people. That\u2019s how you can become a six-figure earner easily. And that\u2019s how you polish the skills you really need in practice. After all, what\u2019s the use of learning theory that nobody ever needs?<\/p>\n<p><strong>Practice projects is how you sharpen your saw in coding!<\/strong><\/p>\n<p>Do you want to become a code master by focusing on practical code projects that actually earn you money and solve problems for people?<\/p>\n<p>Then become a Python freelance developer! It\u2019s the best way of approaching the task of improving your Python skills\u2014even if you are a complete beginner.<\/p>\n<p>Join my free webinar <a rel=\"noreferrer noopener\" href=\"https:\/\/blog.finxter.com\/webinar-freelancer\/\" target=\"_blank\">\u201cHow to Build Your High-Income Skill Python\u201d<\/a> and watch how I grew my coding business online and how you can, too\u2014from the comfort of your own home.<\/p>\n<p><a href=\"https:\/\/blog.finxter.com\/webinar-freelancer\/\" target=\"_blank\" rel=\"noreferrer noopener\">Join the free webinar now!<\/a><\/p>\n<p>The post <a href=\"https:\/\/blog.finxter.com\/freelance-developer-llc\/\" target=\"_blank\" rel=\"noopener noreferrer\">Freelance Developer LLC &#8212; Is It Smart For You?<\/a> first appeared on <a href=\"https:\/\/blog.finxter.com\/\" target=\"_blank\" rel=\"noopener noreferrer\">Finxter<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Should you create an LLC as a freelance developer? In this article, you&#8217;ll learn about which clothes your freelancing business should wear. Make no mistake&#8212;choosing the right business entity matters. And informing about this question by reading articles like this one may be one of the most important decisions in your professional life. Disclaimer: I&#8217;m [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[857],"tags":[73,468,528],"class_list":["post-119892","post","type-post","status-publish","format-standard","hentry","category-python-tut","tag-programming","tag-python","tag-tutorial"],"_links":{"self":[{"href":"https:\/\/sickgaming.net\/blog\/wp-json\/wp\/v2\/posts\/119892","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/sickgaming.net\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/sickgaming.net\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/sickgaming.net\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/sickgaming.net\/blog\/wp-json\/wp\/v2\/comments?post=119892"}],"version-history":[{"count":0,"href":"https:\/\/sickgaming.net\/blog\/wp-json\/wp\/v2\/posts\/119892\/revisions"}],"wp:attachment":[{"href":"https:\/\/sickgaming.net\/blog\/wp-json\/wp\/v2\/media?parent=119892"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/sickgaming.net\/blog\/wp-json\/wp\/v2\/categories?post=119892"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/sickgaming.net\/blog\/wp-json\/wp\/v2\/tags?post=119892"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}