What Freelancers Should Know About LLCs

Freelancers don’t have to form an LLC for their business, but there are many reasons they should consider doing so. Here are five key benefits of forming an LLC for freelancers in Kansas City, Boulder, and beyond.

Limited Liability

A Limited Liability Company (LLC) protects its owners from personal liability for business debts and obligations. This means that if your LLC signs a lease and defaults, the landlord can take action against the LLC, but not against your personal assets unless you personally guaranteed the lease or a court pierces the corporate veil.

However, you are always liable for your own actions. If you cause an accident while delivering work to a client, your LLC won’t protect you personally, that’s where business insurance comes in.

Tax Benefits

Operating as a sole proprietor means the IRS sees no distinction between you and your business. The same applies to single-member LLCs that don’t elect a different tax status. In both cases, you’ll file a Schedule C with your personal tax return.

Forming an LLC, however, allows you to elect S-Corp tax status. This can help reduce your tax burden under the right circumstances. If your business generates significant income, an S-Corp election may allow you to classify part of your earnings as distributions rather than self-employment income, lowering your overall tax bill. Consult with an accountant to see if this option is right for you.

Helping Your Clients

Clients often want to avoid the risk of the IRS reclassifying their independent contractors as employees. Operating through an LLC (especially if taxed as an S-Corp) can reduce this risk, making your business a more attractive hire. Many companies prefer working with LLCs over sole proprietors for this reason.

Professional Perception

Branding matters, and an LLC can enhance your professional image. For large corporate clients, working with “Kansas City Art Shop, LLC” or “Boulder Creative Services, LLC” appears more credible than just “Jane Doe.” A formal business structure signals professionalism and can help you secure higher-value projects.

Future Growth

If you plan to scale your freelance business into something larger (such as adding owners, raising investment, or selling your business) starting with an LLC makes future transitions smoother. An LLC provides the flexibility to grow, bring on partners, and secure outside funding, making it a valuable structure for freelancers with long-term ambitions.

*This article is general in nature and is not legal advice.