Years ago, my husband and I managed to provide for our family on far less money than we are making today. We have been dumbfounded by how we could be struggling so much these days when our income has more than doubled since back in the day. After going over our finances over and over and not finding where the money is all going, I decided to hire an accountant to help us figure things out. Are you experiencing the same struggles? If so, my blog will provide you with tons of helpful advice that can help you find the money you seem to be losing.
When you work as an independent contractor and especially when your contract work comes in addition to a second job, filing for taxes can be a real headache. While you might be just doing what you have to in order to survive, the income from your second job can create problems when filing your taxes. In some situations, creating an LLC for your contracting jobs can help to save money when it comes to taxes.
What Is an LLC?
Legally, a corporation is looked at as a separate entity from the individual or individuals who form it. This means that the corporation can take on debt, own property, file suits, and have its own assets. A limited liability corporation, or LLC, provides a shelter for the shareholders. Thus, if someone sues your LLC for work you do, they can only lay claim to the assets of the LLC and not to your personal assets as a shareholder in the company.
Creating an LLC
If you decide to create a limited liability company, you need to know that there is more involved than registering a catchy name with the appropriate government offices. You have legal and government fees that you will need to pay, articles of incorporation that you will need to create and annual tax returns to fill out. In other words, it is easy to get out of your depth when forming a corporation, and enlisting the help of an accountant and/or lawyer should help to make the dream of forming a corporation a reality.
How an LLC Will Help
Considering the effort and money that goes into forming an LLC, you might have doubts about whether creating one will actually help you. The main way an LLC can help an independent contractor is that the assets of the LLC are taxed at the corporate tax rate, which is lower than the individual tax rate. Thus, if you were to report the money you make on contract work as your personal income, you would end up paying more in taxes than you would by filing the contract money as assets for your LLC.
Depending on how much work you do as an independent contractor, creating an LLC can potentially save you hundreds, if not thousands, in tax dollars every year. These savings should more than make up for the money you spend to form the LLC in the first place. To decide if creating an LLC makes sense for you, you need to call an accountant like Tony Tiani & Co Inc Prince George and review your financial situations with them.