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As a freelancer, I've heard many people say that I should incorporate myself. What I'd like to know is what are the pros and cons of doing so? Are there any benifits to not doing so and if someone choose to inc himself, what are the steps he or she should take?
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Heaven is made
of 1's and 0's
What do you mean by incorporate yourself?
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Originally posted by Eyenovation
What do you mean by incorporate yourself?
Um...well I'm not exactly sure. I think it means to declare yourself a company which means you'd have tax write-offs and stuff like that--or can I do that as just a freelancer with no company name?
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Heaven is made
of 1's and 0's
Oh.. I feel stupid. Here I am thinking of you incorporating yourself into your site.. (like your picture).. Never mind. I have an IQ less than a binary digit.
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tell me, is this sellable.....
the biggest advantage to being a company rather than freelance is that a company only pays taxes on its profit, whilst a freelancer payes taxes on his/her turnover.
this is somewhat generalized, but it holds true for all countries, as far as I know. Ok have to admit ignorance of Congos taxation system but ... I supose you get the general idea.
For a company your accountant gets to play around with your costs of software and hardware, etc. A freelancer does not.
hope that helps
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Modding with Class
Originally posted by OddDog
For a company your accountant gets to play around with your costs of software and hardware, etc. A freelancer does not.
hope that helps
Actually, as a freelancer, you definitely can claim any products and expenses used in your business. (There are limits on how much... you'll have to either consult your tax-guy, IRS website, or Turbo-Tax documentation, etc.)
You can claim mileage, car payments, computer equipment, depreciation on office equipment, office space, the list goes on.
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company v private
another thing, if you get sued and you are a privately run business, a court could take all of your assets and possesions.
however, if you are registered as a limited company the court could only take the company assets and possesions.
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Heaven is made
of 1's and 0's
Chances are unless you are claiming your income (which I understand that most freelancers dont), it might be a good idea to stay as is.
If you are claiming your income.. you could use the Inc. to write off your expenses.
There are pros and cons to everything..
Go for an LLC if anything..
Limited Liability..
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It depends on the amount of liability you are willing to assume and the amount of sales you intend to bring in.
We consulted a CPA and actually pay him a retainer to do our taxes for us. Learned real quick what we are good at and what we are not. Basically he advised us to go as a partnership until you bring on employees. We have very limited risk because we dont have a product that can physically hurt someone ( I dont want to get into the issue of slander, etc. with words on the Internet ). The real benefit for us was before we had a shop we were able to write off a ton of stuff with our houses....home office, ISP, portion of the utilities, portion of mortgage, gas, food, etc.
Now, once your sales start to increase you gotta contact a CPA cuz you will get eatin alive in taxes cuz you will have to pay taxes on the money you bring in, and then again on the money you take as a profit.
Contact a CPA....this isnt a thing to do on a whem.
In fact, if you go to entrepreneur.com or subscribe to their magazine, they have hire a lawyer and a cpa as one of the first steps when starting a business.
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Heaven is made
of 1's and 0's
But.......
At what point do you say.. okay..
This is going to be a legitimate business...
Speaking for myself.. I work mostly out of my house (no laughs, please) doing odd freelance jobs to anyone who pays. So for me, being small and working primarily for cash.. would I be wise to not claim the income.. hence not get taxed??
With starting a REAL business comes much more overhead, no?
On a side note.. at what point does one decide, I need to make this a legitimate business, DBA, etc.
Any ideas??
Also - How does one take a home business like Graphic design and TURN IT INTO a real business.. It is more than a business license, I am sure.
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YH Jelly Llama Jockey
I f you are in the UK things may be difficult, to do it properly you have to start your own limited co, if you don't and continue to do work from home for cash in hand (eg no tax) you can get in trouble, esp if a company you have worked for get audited, show what they have spent on a website and they notice the person doing it don't pay tax on it.
Overheads don't need to increase if you are a company, you can still work from home etc but bear this in mind. If you get your business to pay for part of your mortgage, bills etc you are liable for capital gains tax (UK at least) that is to say if the business pays part of tyour mortgage when you sell the house or close the business you are taxed on what is deemd to be your company assets- the house.
In UK you only need to pay tax on your profit (but still need to pay income tax on your own income you draw from the co but you can reduce that by paying yourself dividends, shares etc.
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Heaven is made
of 1's and 0's
Intersting.. so you write off a portion of your house.
Very clever.
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uk business
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this is what i know about setting up a business.
you can work from home provided the relevent authorities have been informed and you do not create a nusiance ie lots of visitors, noise or pollution etc etc.
provided that you notify the inland revenue within 6 months of recieving payment from a client, keep proper accounts and pay your tax every year you'll be ok.
you can set up as a limited company or not, its up to you to decide what is best but the tax allowances remain very roughly the same.
you can claim heating lighting petrol phone computer equipment (currently at 100% tax deductable - part of tony blairs initiative for all businessess to be IT literate).and more, whether you decide to be a limited company or not.
this is according to the LLOYDS-TSB
small business guide(uk).
"a limited company has several advantages: limited liability, grater credibility,lower tax,better pension rules,more avenues for raising finance and easier disposal of part of your business."
"a sole trader and partnership have less onerous rules about accounts, lower national insurance payments and better tax treatment of losses."
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I started my business 4 years ago as a sole proprietor (small personal business in the US). The benefit being that it was simple to start and run. One of the main benefits of incorporating is to limit liability. However, corporations are more complicated to maintain and one generally needs extra support (lawyers, accountants, etc.) to keep up with all the rules.
As a contractor, I usually work as an agent for another company so my liability is limited. For me, the benefit of limited liability has not been enough to incorporate. I typically work for large companies (with deep pockets). If they were to sue me, they could keep it tied up in the courts until I was broke anyway (corporation or not). That said, I still re-evaluate the need to incorporate a few times a year. I'm sure that there will come a time when it makes sense for me to incorporate.
-Brian
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