Hi there, I recently started a new career and I work as an independent contractor (we receive a 1099 yearly). Is it better for me to file with an LLC to better protect my assets? Sorry I'm not too familiar with LLC's or working independently.
I also have a full time job through an employer so I am both employed and I have my own business now.
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Generally speaking, there is no tax advantage to establishing an LLC since they are considered a disregarded entity. What this means is that unless an S-Corp election is also made, a Single Member LLC is taxed as a sole proprietorship just as if the LLC was not established. This is done by filing a Schedule C to claim the business income and expenses.
Multi-member LLC's are taxed as a partnership unless a S-Corp election is made. Partnerships must file a form 1065 to claim the business income and expenses, but do not pay taxes. Instead, K-1 is then issued to all partners that states their portion of income and expenses, and that flows through to their personal tax returns (generally as self employment income).
As I mentioned above, either can make an S-Corp election. S-Corps, like partnerships, do not pay taxes, but must file an 1120-S and issue a K-1 to all owners. In addition, S-Corps must pay their owners W-2 wages. These W-2 wages and K-1 earnings are reported on the individual tax return.
Thank you for that information RyanH5.
I recently became a life insurance agent in which we do have to purchase insurance to protect ourselves in the event someone sues us. We are covered up to $1M dollars. Would having an LLC protect my house and assets further? I guess I'm just debating on whether or not to get an LLC?
Hello jami3ann,
Great follow up question!
My suggestion would be to talk to a local financial planner or lawyer in order to find out how an LLC would help you protect your house and assets.
Most of the time, people form an LLC so that in case something bad does happen, their company is to blame and not themselves personally.
For more information regarding the benefits of forming an LLC, feel free to review the following TurboTax website: https://turbotax.intuit.com/tax-tips/small-business-taxes/limited-liability-company-taxes/L5TDDlstC
Thanks,
Sean
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