Self-employment offers workers the freedom to set their own hours and decide which projects to take on, but also brings additional responsibilities. In addition to calculating and paying your personal taxes, you’re also exposed to legal liability if a client suffers losses due to your actions. Here are some of the ways an attorney can help you structure your business to minimize your tax burden and liability.

3 Common Business Formations for the Self-Employed

1. Sole Proprietorship

Operating under your own name is the simplest and most popular choice for the self-employed, since it lets you work without filing paperwork or paying an annual fee. However, the money you make is treated as individual income, which is taxed at a higher rate than corporate revenue. As a sole proprietor, you’re also personally liable for all the business’s debts, as well as any financial damages caused by your work.

2. Limited Liability Company

Founding an LLC with an attorney requires paperwork and maintenance fees, but offers more protection and perks than a sole proprietorship. Since you and your LLC are considered separate entities, this kind of company shields you from legal liability for debts and some lawsuits, making it a popular choice for software developers, contractors, and consultants. For tax purposes, an LLC is treated as a “pass-through” company, so you’re only taxed on your personal return.

3. Corporation

As a completely separate legal entity, corporations offer the strongest protections against liability and some features that may lower your taxes. Any losses suffered by a corporation don’t affect you, and they allow you to sell shares of your business to raise revenue when you want to expand. Corporations are also taxed at a lower rate than individual citizens, which can save you a significant portion of your income at the end of the year.

If you’re interested in creating an LLC or corporation to represent your business, visit the office of Donald L. Spafford, Jr., Attorney at Law. For over 36 years, this attorney has provided business owners throughout Honolulu, HI with detailed guidance to get out of financial troubles and maximize the profits of their labor. Visit their website for more information on their attorney services, or call (808) 532-6300 to schedule a consultation.