I am a recent graduate, I’ve been doing freelance work for about a year now and I haven’t set up anything legally as a business, although I did pay taxes on my income last year. Can anyone tell me what is the best way to go about this or if it’s even necessary? I’ve contacted local small business administrations and they haven’t really helped me on how this works for the design field. Thoughts?
I also heard it is not a good idea to name the business after your own name. Thanks!
I don’t recall at this moment all that is needed to set up an LLC, but I can tell you why they can be a good idea, liability! LLC of course stands for Limited Liability Company which means like a corporation the liability is limited to the company not you (except in cases of gross negligence). This means that if you are ever sued, only the company’s assets can be touched, leaving personal assets like your house, car, etc. untouched by the man.
There are other advantages as well involving finances and taxes. I have a book I used in school that covers a lot of these issues for designers, when i get a chance i’ll dig it out and get the title for you.
That would be great! Thanks
Here’s the book we used in school, its not the greatest but it is specific to designers and the issues they might face.
Talent Is Not Enough: Business Secrets For Designers, Shel Perkins. I hope this helps.
Step 1 - Come up with a name for your LLC and make sure no one else is using it in your state. You can search the name online.
Step 2 - Get a federal EIN tax number (free - online):
Step 3 - Apply for LLC with your secretary of state ($130 in Wisconsin - online):
You can get all of this done in about an hour once you get a cleared name. Pretty easy…
manty, just something to consider. When you go “corporate” you will be stepping into an entirely difference tax reporting bracket, from an IRS point of view.
Before leaping into this, I would have a chat with a tax consultant, preferably one whose is an “Enrolled Agent”, i.e. licensed to practice before the IRS; this expertise isn’t within the purview of your H&R Block guy.
While there may be some tax advantage, personally, I wouldn’t bother with incorporation; it isn’t cheap to do, and once “incorporated” it isn’t cheap to get out of (at this point you would have the IRS involved, and other legal entities to reverse (for which, an attorney would be required)). And realistically, at this point in your career, there probably isn’t much to “protect”. If you are that concerned about “errors and omissions” you can purchase insurance for that without being incorporated.
And as far as using your name goes, why not … ??
The general guideline with this, i’ve read, is twofold-
if you sell your business at some point it may have more value not being attached to you or provide for a cleaner break.
if things go bad, you don’t have the cloud of doom over your name as a business that went into chapter 11
I had my business set up under an LLC and found that it was not really necessary. Switched to a sole proprietorship and go a $2 million Professional liabilty policy from http://www.consultantinsurance.com. Also got a $5 million Umbrella from them as well. This coverage combined with an ironclad contract is enough for me. Bookeeping and taxes are much easier with a sole proprietorship.