How to Incorporate Yourself for Financial Savings

So you are a freelancer or independent contractor and you want to know how to incorporate yourself. Smart. My feeling is that if you are self-employed in this way, you're in one of the best possible work scenarios.

You get much of the flexibility of business ownership, without having to jump into the deep end of a stand-alone operation! Furthermore, you can both save money on taxes and protect your assets!

Business owners are offered significantly greater tax benefits than a standard W-2 employee. And while freelance taxes offer similar benefits, they may not be quite as good as an actual business entity.

Are Taxes for Independent Contractors Better or Worse than the Average Employee?

There are two ways an “independent contractor” or “freelancer” can be in business. They can get paid as an unincorporated 1099 contractor or can incorporate themselves and get paid to their corporation. There is potentially a tax difference between the two!

What Determines the  Way I Get Paid?

1099 Income: This means you are contracted by a customer on a project-by-project basis. They don't have you on “W2 payroll” and do not deduct freelance taxes on your behalf.

Business Entity Income: This option is where you create a separate business entity for your freelance business activities.

You will potentially pay less self-employed payroll tax than if you are just a 1099 contractor.

Self-Employment Tax

Business Credit

You will be able to build business credit that won't show up on your personal credit report and affect your credit score.

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