It is becoming increasingly common for individuals to start their own companies or to provide products or services as a side hustle. Whatever your reason for being an independent contractor, it is important to have the right organizational structure. Let’s look at some questions that you should ask before starting an LLC.

Do You Have Assets That Need Protecting?

Legally Mine explains that different business entities offer different levels of legal asset protection. An LLC is a legal entity that is separate from the company’s owner. In other words, if the company is sued, a plaintiff can generally only collect money in a corporate bank account or liquidate assets owned by the business. If you have a home or other valuable personal assets, an LLC may be right for you.

Are There Alternative Ways to Protect Yourself?

If you’re concerned about protecting yourself against liability, it may be possible to obtain it without forming an LLC. For instance, you could have clients sign waivers or other agreements that hold you harmless if something were to happen. IRMI talks about how liability insurance can also protect you financially if a customer is financially harmed for any reason.

Can You Save Money on Taxes?

One of the best reasons to form an LLC is that you can choose to be taxed as a sole proprietor, a partnership or a corporation. This and other actions can offer a variety of ways to save money on your tax bill each year. For instance, if you choose to be taxed as an S corporation, a portion of your income can be declared a distribution to the owner. There is no need to pay self-employment tax on distributions.

Is it Worth the Extra Cost?

Business Credit describes how there may be extra costs associated with forming an LLC. For instance, there may be fees to create the LLC as well as yearly fees charged by your state. Furthermore, it may be necessary to pay a fee in both the state where the entity is formed and in the state where the business exists. The added complexity of the LLC structure may also result in the need to hire an accountant.

If you earn a living working for yourself, it is important that you understand all the ramifications associated with doing so. With an LLC, you can minimize your liability while still having the flexibility to run your business as you see fit.