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  1. #1
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    Post Freelancers with LLC's?

    So someone suggested I start up an LLC to protect myself. Although Im not doing anything crazy right now, freelancing product design is supplementing me getting into illustration.

    I want to know:

    How much it would cost? Did you do it yourself or through an attorney?

    How are taxes taken out (do I pay them as an employee or am I considered the company and pay them as I pay them quarterly doing freelance)?

    You have to pay an annual registration fee to keep it running?

    Anything else I should know about it? Pitfalls? Benefits?

    Do you pay into unemployment with an LLC?

    Some people I know set them up in another state as well. Sounds sketchy to me. Comments are welcome.

    I know its different from state to state. Im in NY if that helps.

    Thanks for any help!!


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  3. #2
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    Im in Canada and things may be slightly different.

    When Freelancing here, under your own name, and you are not a registered business, you may waive taxes on your service fees.You still have to declare your earnings as income and tax them accordingly, but this taxation only occurs once.

    Setting up as a ltd company, forces you to tax the client, tax the company's income, and then tax yourself when you make an owner withdrawal (pay yourself)

    Its not worth doing for small freelance work that doesnt constitute a standard regular income, unless you plan to grow the business and need a company name, with a tax number and officiality behind you to attract larger clients.

  4. #3
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    In California and Arizona there is an annual tax on LLCs ($800 in CA, plus extra if your company makes over a certain amount annually). You would have to be doing a bunch of business to justify paying out an extra $800+ a year in taxes over your personal income taxes. If you don't have a lot of assets that need protecting (I don't know, just hypothesizing), then the wisdom of this is in further question.

    You may be able to get a simple policy of business liability insurance for premiums that are less than the LLC taxes per year if you really are worried about being protected.

  5. #4
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    Is this something I should get an attorney for or speak with my accountant?

    I have certain assets like a 401k and such. Im not making crazy dough. The freelance is on and off right now, plus Im not sure what anyone could sue me over.

    $800/year is a bit steep.

    Anyone out there set up under and LLC? Still kind of iffy if this is for me or not. THanks for the feedback so far though!!!!!

    Quote Originally Posted by arttorney View Post
    In California and Arizona there is an annual tax on LLCs ($800 in CA, plus extra if your company makes over a certain amount annually). You would have to be doing a bunch of business to justify paying out an extra $800+ a year in taxes over your personal income taxes. If you don't have a lot of assets that need protecting (I don't know, just hypothesizing), then the wisdom of this is in further question.

    You may be able to get a simple policy of business liability insurance for premiums that are less than the LLC taxes per year if you really are worried about being protected.

  6. #5
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    Maybe a quick little consultation with a New York attorney proficient at taxation will put your mind at ease.

    Attorneys call people who have nothing much to lose "judgment proof" but the 401k might be an issue. The New York attorney can tell you what is going on over there, and what rate NY LLCs get taxed at. He should understand the Internal Revenue Code, if possible, because that is what will affect how easily a judgment creditor could attack your 401k.

  7. #6
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    www.irs.gov

    Research it there.
    "Everything must serve the idea. The means used to convey the idea should be the simplest and clear. Just what is required. No extra images. To me this is a universal principle of art. Saying as much as possible with a minimum of means."
    -John Huston, Director

  8. #7
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    Thanks but already checked the obvious places. Not so cut and dry to find info.

    Quote Originally Posted by OmenSpirits View Post
    www.irs.gov

    Research it there.

  9. #8
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    My understanding of LLCs is to protect your personal assets should your business fail. Unless you are taking on debt for your business, or fear you could get sued (probably unlikely for freelance) etc, what exactly do you want a LLC as protection from?

    My guess, is the advice came from someone who knows a bit about small business, but not necessarily about freelancing. While there may be some perks to having a LLC, I don't think many freelancers need them. I'd be curious to hear from more people who have experience with them though.

  10. #9
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    Same with me. Certain things didn't make sense in me getting one and I wanted to make sure I wasn't overlooking something important.

  11. #10
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    Forming a Limited Liability Company (LLC)

    In an LLC, owners have limited personal liability for the debts and actions of LLC, similar to a corporation. The benefits of pass-through taxation and flexibility, much like a partnership, make LLCs an attractive business structure. Each state may use different regulations, and you should check with your state if you are interested in starting a Limited Liability Company. Banks, insurance companies, and non-profit organizations generally cannot be LLCs. Your state may have other restrictions.

    Electing an Entity Classification

    Because the federal government does not recognize LLCs for federal taxation purposes, each LLC is classified differently depending on the LLCs structure. In some cases, the company can request how they would like to file the return. LLCs can only be classified as a corporation, partnership or sole proprietorship. Form 8832 is needed to classify your LLC.


    LLC Filing as a Corporation or Partnership

    The LLC structure is not recognized by federal law and therefore their filing status is determined by the Entity Classification Rules. Form 8832 is used for this purpose. Pursuant to the entity classification rules, LLCs with multiple owners that do not elect to be taxed as a corporation are taxed as a partnership.

    Classification
    The Entity Classification rules classify certain LLC business entities as Corporations:

    A business entity formed under a Federal or State statute or under a statute of a federally recognized Indian tribe if the statute describes or refers to the entity as incorporated or as a corporation, body corporate, or body politic.
    An Association under Regulations section 301.7701-3.

    A business entity formed under a Federal or State statute if the statute describes or refers to the entity as a joint stock association.

    A state chartered business entity conducting banking activities if any of its deposits are insured by the FDIC.

    A business entity wholly owned by a state of political subdivision thereof, or a business entity wholly owned by a foreign government or other entity described in Regulations section 1.892.2-T.
    A business entity taxable as a corporation under a provision of the code other than section 7701.(a)(3).
    Certain foreign entities (see Form 8832 instructions).

    Insurance Company

    An LLC that is not automatically classified as a corporation can file Form 8832 to elect their business entity classification. A business with at least 2 members can choose to be classified as an association taxable as a corporation or a partnership, and a business entity with a single member can choose to be classified as either an association taxable as a corporation or disregarded as an entity separate from its owner, a “disregarded entity.” The Form 8832 is also filed to change the LLC’s classification.

    Filing
    If the LLC is a partnership, it should file a Form 1065, U.S. Return of Partnership Income. Each owner should show their pro-rata share of partnership income (reduced by any tax the partnership paid on the income), credits and deductions on Schedule K-1 (1065), Partner’s Share of Income, Deductions, Credits, etc.

    If the LLC is a corporation, it should file a Form 1120, U.S. Corporation Income Tax Return. The 1120 is the corporate income tax return, and there are no flow-through items to a 1040 from a corporate return. However, if the LLC filed as an S Corporation, it should file a Form 1120S, U.S. Income Tax Return for an S Corporation and each owner reports their pro-rata share of corporate income, credits and deductions on Schedule K-1 (Form 1120).

    For additional information on the kinds of tax returns to file, how to handle employment taxes and possible pitfalls, refer to Publication 3402 Tax Issues for Limited Liability Companies.

    http://www.irs.gov/businesses/small/...158448,00.html

    Limited Liability Company (LLC)

    A Limited Liability Company (LLC) is a business structure allowed by state statute. LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation.

    Owners of an LLC are called members. Since most states do not restrict ownership, members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit “single member” LLCs, those having only one owner.

    A few types of businesses generally cannot be LLCs, such as banks and insurance companies. Check your state’s requirements and the federal tax regulations for further information. There are special rules for foreign LLCs.

    http://www.irs.gov/pub/irs-pdf/f8832.pdf

    http://www.irs.gov/businesses/small/...=98350,00.html

    http://www.irs.gov/businesses/small/...=98846,00.html

    For a face to face about the question:

    http://www.irs.gov/app/officeLocator...us=10&submit=1
    "Everything must serve the idea. The means used to convey the idea should be the simplest and clear. Just what is required. No extra images. To me this is a universal principle of art. Saying as much as possible with a minimum of means."
    -John Huston, Director

  12. #11
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    Without meaning an attack on your artistic ability, it's unlikely you will draw a picture so hot it starts a fire in the magazine. People manufacturing things might need some protection from product liability lawsuits and LLCs are popular in the real estate development crowd because of premises liability and how big the judgment might be if a whole apartment building collapses. Cab companies do this because of car crash liability.

  13. #12
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    I'm also still doing product design as well (trying to get out of it). So Im not sure if that adds any liability to me.

    I dont engineer or do CAD for any hard goods. Im doing concepts and softgoods.

    Someone in the design field recommended an LLC.

  14. #13
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    One thing to look out for is banks requesting personal guarantees. Seen it time and again when they insist on having a charge on a personal property and the business fold leaving the client without anything. Don't know how it plays in the US, but in the UK if the courts think the directors/shareholders were culpable, they can still be taken to the cleaners. Being Limited doesn't give that many advantages (except tax) to those worried about the future.

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