The technical term for “gig worker” is an independent contractor. There are pros to being an independent contractor, such as controlling where you work, what hours you work, how you do the work, and what work you are willing to perform. While being an independent contractor gives you flexibility and control, it may also set you up for personal liability if you have not planned to mitigate your risks.
Many gig workers unknowingly operate as sole proprietors. Doing so unfortunately subjects those individuals to personal liability for their actions or inactions. Forming and operating as a company (such as a limited liability company, or LLC) creates liability protection from personal assets. Provided you operate the company properly, you will not be personally liable in the event your company is sued or incurs business debt. This includes protecting personal assets such as your home, car, and bank account from company creditors. You may also be entitled to deduct expenses related to your company that you may otherwise not been eligible to deduct or claim as business expenses.
An LLC is one of the easiest types of entities to form and maintain for a gig-economy worker. You will be considered a “disregarded entity” for tax purposes (unless you elect S-Corp taxation, noted below), and you will have no board of directors or other equity owners with whom to contend. The formation process is relatively straightforward, and the maintenance costs are minimal in comparison to the liability protection you are afforded.
The default taxation for a single member LLC is that of a disregarded entity, meaning the owner may file the company’s taxes on his or her own personal taxes each year. Depending on the revenue of the business, however, it may be advisable for an LLC to elect taxation as a corporation under Subchapter S (S-Corp). The election allows the owner to pay him/herself a reasonable salary as a W-2 employee, with the company contributing a portion of the federal taxes. The owner will not have to estimate quarterly self-employment taxes, nor keep a nest egg aside to pay Uncle Sam each quarter or at the end of the year. Those who have dealt with this before will know how arduous it can be.
No products in the cart.