Wondering whether it’s better to operate as a sole proprietor, form an LLC, or be a 1099 contractor? Each option has pros and cons to consider.
Pros and Cons
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As a 1099 contractor, you pay self-employment taxes. This gives flexibility to deduct business expenses. But you have unlimited personal liability if sued.
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An LLC protects your personal assets if sued. LLCs can choose how they are taxed. As an LLC taxed as a sole proprietorship or partnership, you save on self-employment taxes. But extra paperwork is required to form and run an LLC.
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You can pay yourself from your LLC as a 1099 contractor. This avoids payroll taxes. But your LLC must still file forms and pay income taxes. Expect to pay 15.3% self-employment tax on this 1099 income.
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Sole proprietors have simplicity on their side. But they lack liability protection and access to potential tax savings. Weigh options carefully before selecting a business structure. Consider consulting a financial advisor for guidance.
Self-Employed vs. LLC
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A 1099 worker pays less taxes. As a sole proprietor you have unlimited liability if sued. An LLC protects assets if sued.
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A 1099 contractor can reduce taxes by creating an LLC. But consult a financial advisor to see if an LLC is best for you. LLCs can be taxed as a partnership or corporation, which may offer tax benefits.
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Paying yourself through your LLC as a 1099 contractor can avoid payroll taxes. But your LLC must apply for tax forms to later file IRS forms. You’ll usually pay 15.30% tax on this income.
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As a 1099 worker you are a sole proprietor unless you form a business entity. Sole proprietors can deduct business costs but have unlimited personal liability.
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Forming and running a business involves legal issues. It’s best to hire an advisor to guide you through starting and operating a business.