For people who work for themselves
Clients start asking for a company name on the contract, an accountant mentions an S corporation, and suddenly the question is whether your one-person practice should be an LLC. This guide answers that, one line at a time.
Total One decision, with the reasons set out beside it
Where one route suits a freelancer better, it is said in words, with the reason beside it.
A fee, a deadline or a tax rule is attributed to the state office or agency that publishes it.
What a formation service does, what it charges and what it still leaves for you to do yourself.
The top copy
What changes
Most of the confusion about freelancer LLCs comes from expecting the company to change more than it does. Here is the split, area by area.
A limited liability company is a business formed under state law. You file articles of organization with a state, the state registers the company, and from then on contracts, debts and bank accounts can sit in its name rather than yours. For a freelancer who works alone, that is a single-member LLC, and in most day to day respects the work does not change at all: you still find the clients, do the job and send the invoice.
What changes is the paperwork around the work and where the risk sits. The company becomes the party to your contracts. You keep its money in its own account. You file a short report with the state on a regular schedule. In exchange, a debt or claim against the business generally stops at what the business owns, rather than reaching your savings or your home.
What does not change, by default, is your federal tax. The IRS disregards a single-member LLC unless you elect otherwise, so the profit lands on your personal return in the same place it did before. That surprises people who formed the company expecting a tax saving.
An LLC separates the business from you. It does not, on its own, change how much tax the business pays.
Write, tear, file
Setting it up
The steps are the same in every state, though the forms, the fees and the names for them vary. Each one depends on the step before it.
The carbon copies
How the guide is organised
The guide is filed in the order a freelancer usually meets these questions: first whether, then what it costs, then taxes, clients and the setup itself.
For a freelancer working alone, a sole proprietorship is the default and is sometimes enough. This part sets out where an LLC changes the picture and where it does not.
The state filing fee, the annual report, a registered agent and any franchise tax, each attributed to the state that sets it, with what a formation service adds on top.
The default treatment of a single-member LLC, what self-employment tax applies to, and when an S corporation election starts to make sense for independent work.
Signing in the company name, what to send clients after the switch, and how payments from platforms and agencies are reported once you are an LLC.
The filing itself, the operating agreement, the EIN and the bank account, in the order a freelancer usually meets them.
What an online formation service does that the state form does not, what it charges for it, and the parts it leaves to you either way.