Do I Need an LLC to do Freelance Marketing? (Sole Proprietorship vs LLC vs S Corp

Disclaimer: The information provided in this blog post is for general informational purposes only and does not constitute legal, tax, or financial advice. Every freelance business is unique, and the appropriate business structure may vary depending on individual circumstances. Readers are advised to consult with a qualified attorney, accountant, or tax professional to determine the best legal entity for their specific situation.

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Introduction

When I first started freelancing in college, I didn’t think twice about contracts, legal entities or tax liabilities. I was just too excited that someone was willing to pay me $250 a month to manage their social media accounts…

But once I got serious about freelancing, I realized I needed legal structure. Just like you, I Googled “Do I need an LLC to Freelance?” and got overwhelmed with a million articles and Youtube videos.

My goal for this article is to break down your options as simply as possible, in a way I wish I had when I started freelance marketing.

Before we dive in, there are 3 main considerations that should be top of mind when evaluating your options:

1. Legal liability
2. Tax implications
3. Professional image

It’s also important to note that there are endless options to structure your freelance marketing business, but this article will only focus on the most popular three: sole proprietorship, LLC, S Corp.

If you’re a freelance marketer considering your options, you should have a clear understanding of which structure is best for you after reading this article. Sole proprietorship, LLC, S Corp.

Option 1: Sole Proprietorship

What is it?

A sole proprietorship is a business owned and run by one person that is not incorporated. It’s basically doing business as yourself. It is easy to set up but provides no legal separation between you and the business.

Pros

• Virtually zero setup: it’s easy, quick and straightforward to start a sole proprietorship. You’re not required to formally register your business with federal or state offices. You’re also not required to file for an EIN, and can use your SSN instead to start immediately. You simply start running your business under your own name.
• No registration fees: Unlike most LLCs, sole proprietors don’t carry a registration fee.

Cons

• Unlimited personal liability: legally speaking, there is no difference between your personal assets and your business’s. If a client sues you for any reason, your personal assets are on the line. That includes your car in the driveway.
• “Self-employment taxes”: also known as Social Security and Medicare. Typically, the burden of these taxes is split between employers and employees, but in the sole proprietorship scenario, you’re both the employer AND the employee. This means you’re responsible to cover the whole thing.
• ‍Pass-through taxation: If you’re working full-time for a company and freelancing as a side hustle, your freelance income will be added on top of your W2 income (your full-time job income). This means your business income could push you into a higher tax bracket, and potentially reduce the value of that extra income you generated freelancing.

➡ Best for: one-off, or part-time freelancers offering services that are unlikely to create legal disputes.

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Option 2: Limited Liability Company (LLC)

What is it?

An LLC is a business structure that offers limited protection to the personal assets of its owner. It stands for “limited liability” which means its members are not personally liable for the company’s debts and lawsuits. However, standard LLCs share similar tax burdens sole proprietorship do.

Pros

• Asset and liability protection: perhaps the most important benefit of an LLC. Operating under an LLC protects your personal assets from legal actions taken against your business. If a client sues you for whatever reason, you’re only partially liable.
• Professionalism: Doing business as an LLC and marketing yourself as a proper company can make a difference in perceived value and help you attract and close more business.
• Scalability: Forming an LLC gets you access to an Employer Identification Number (EIN). This allows you to hire employees if your business takes off the ground.‍
• Ability to open a business bank account: That same EIN allows you to open a business bank account.

Cons

• Higher setup and maintenance costs: most states charge a one-time filing fee when you form your LLC, others might also charge an annual fee that can quickly increase in size depending on your annual income.
• “Self-employment taxes”: just like a sole-proprietor, LLC owners who don’t elect for S Corp taxation are liable for extra self-employment taxes.
• More complex paperwork: some states require specific annual or bi-annual requirements. For example, California requires you to file a Statement of Information with the Secretary of State every other year. Failure to file can trigger penalties. Make sure you understand all the requirements from your state before filing for an LLC.‍
• More complex business tax: while most sole proprietors DIY their taxes, LLC owners will want to contract tax professionals to help file properly and avoid penalties or audits

➡ Best for: freelancers with moderate to high business risks and part-time freelancers considering a shift to full-time freelancing

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Option 3: S Corporation (S Corp)

What is it?

It’s important to understand that an LLC is a legal business structure, while S corporation is a tax classification. That means when you hear someone talk about an S Corp, they’re referring to an LLC that elected to be taxed as an S Corp.

You have to form an LLC before you can elect to be taxed as an S Corp. Therefore, an S Corp is nothing more than an LLC, but with a different tax election with the IRS.

Pros

• Tax savings: Unlike a regular LLC where you’re technically self-employed and liable for high self-employment taxes, an S Corp gives you the ability to hire yourself as an employee in the business and save on self-employment taxes. This Gusto calculator explains it clearly.

Cons

• More complex: S Corps require you to run payroll and file additional tax withholdings. Throughout the year, you have to pay yourself a regular paycheck and withhold taxes, but you’re also required to pay quarterly estimated taxes for your business. You’ll likely need an extra payroll tool like Gusto, and your CPA might charge you more to handle all the required paperwork.

➡ Best for: full-time freelancers earning significant income (>$80k).

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Conclusion

At the end of the day, picking a structure for your freelance business comes down to your risk level, your affinity for tax-savings, and how complex you’re willing to be with your structure.

For one-off freelancers (~$0-20k a year):

If you’re just starting out in your freelance journey, a sole proprietorship might be the best option for you. It allows you to get started overnight without having to file lengthy paperwork, but it also exposes your personal assets to liability and comes with high self-employment taxes.

For frequent freelancers (~$20-80k a year):

If you’re picking up regular work as a freelancer, but not enough to make a full-time income out of it, a regular LLC might be the best option for you. It provides you with limited liability on your personal assets, gives you more credibility in front of clients, and allows you access to an EIN and business bank accounts. You’re still liable for high self-employment taxes.

For full-time freelancers (~$80k+ a year):

If you’ve made the switch to freelancing full-time, or if you’re getting a significant amount of freelance revenue outside your 9-5 income, an S Corp might be your best option. You benefit from lower self-employment taxes, carry limited liability but also trigger more complex filings and administrative tasks.

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Regardless of where you are in your freelance marketing journey, I encourage you to consult with your tax professional to identify which option is best for you. Depending on your own circumstances, the options above may or may not be the right fit for you.

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