How to Organize Yourself to Save Money

So you are a freelancer or independent contractor and you want to know how to incorporate yourself. Smart.

Independent contractor taxes, or freelance taxes, are a little confusing for sure…but with a little help, you can be using your independent status to save yourself some money.

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

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! Business owners are offered significantly greater tax benefits than a standard W-2 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.

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.

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.

Business Entity Income

Deciding How to Incorporate Yourself and Choosing a Business Entity

For a single or spousal owner business, this is what you’ll want to do in my opinion. You will want to create an “INC” (aka corporation) with an “S Corp” designation, or “LLC” (aka Limited Liability Company) with an “S Corp” designation.

Swipe Up

for more finance, business, and real estate advice

Read More

W4 vs W2 vs W9 vs 1099 Tax Forms: What Are the Differences?

What Is an LLC? And How Is It Different Than a Corporation?