How to Incorporate Yourself to Save Money (and Protect Your Assets)

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!

One of the most significant benefits of being a freelancer is that you get much of the preferential tax status of being a business owner! (Notice I said much.)

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!

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.

1099 Income 

At the end of the year the company that hires you reports the amount of money they paid you to the IRS via a “1099.” You would get a 1099 from every customer you have contracted with. Working this way means you personally “are the business.” Your 1099 income is accounted for on the “Schedule C,” on your personal federal tax return

Business Entity Income 

This option is where you create a separate business entity for your freelance business activities. In layman’s terms, this would be an entity that has a separate business name and has the “INC” or “LLC” designation at the end of it. You likely would also want to get the “S Corp” designation for tax purposes.

While the steps to establish and maintain your entity may seem lengthy, the results can be well worth the hassle. It’s the best way to attack your independent contractor taxes.

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