![]() A corporation is responsible for taxes as a company, and its shareholders also pay taxes on their shares. When it comes to taxation, LLCs are between sole proprietorships and corporations. LLCs are required to pay employer taxes if they have any employees, but independent contractors must only keep track of their own self-employment taxes. Tax Differences Between LLC and Independent Contractor Business owners are required to pay a filing fee to the state in which they are registering their LLC, while an independent contractor owes no fees. LLCs also offer liability protection that independent contractors would not have otherwise. The biggest difference between an LLC and an independent contractor is the fact that LLCs are required to register with the state and form business documents like articles of organization. What Are the Differences Between an LLC and Independent Contractor? An LLC is held responsible for its actions as its own entity in the eyes of the court. Financial liability is limited to only the assets owned by the company and not those owned personally be members. The assets of LLC members are protected if the company itself comes under scrutiny. They provide a level of protection for the owners, also called members, of the company in the case of legal action. Limited liability companies are a very popular type of business structure. An independent contractor is a business owner whether they know it or not. Just like any other business, a sole proprietor must keep business and personal income and expenses separate. ![]() All you need to do to become a sole proprietor is: Sole proprietorships are not registered with the state like other business types. However, most independent contractors are sole proprietors by default. Independent Contractors and Sole ProprietorsĪn independent contractor is not required to form a business structure around their work they can simply continue working as a contractor for as long as they desire. The reason most choose to form sole proprietorships is that they're the simplest business type to form in most states. Their choice will depend on their long-term goals for the services they offer and how many other people they want to get involved in their business. Most independent contractors choose to form a sole proprietorship for their work, but they can technically choose other types like: Independent contractors should keep a close track of their earnings throughout the year and tax percentages so they aren't surprised by what they owe. They'll be required to pay self-employment tax like Medicare and social security as well as personal income tax. A 1099 will not show any tax deductions, because independent contractors are responsible for paying their own taxes at the end of each year. ![]() W-2 forms show the various payroll taxes withheld from their pay, but an independent contractor doesn't pay those taxes. If a contractor does work for multiple companies or individuals, they'll receive multiple 1099s. A 1099 (as it's called for short) is a tax form that lists the total income paid to the contractor from a particular company for the year. Because independent contractors are not employees, they do not receive W-2 forms, but 1099-MISC forms instead. Usually, independent contractors are creative or technical professionals who specialize in a particular medium like web design, writing, or information technology, among others.Įmployees get W-2 tax forms each year that specify their yearly earnings and taxes withheld from their paychecks. Independent contractors provide work and services for others, but they are not technically employees. Both are business types, but an independent contractor is comprised of one person, or member, while an LLC can have one or more members. Independent contractor vs LLC refers to the differences between an independent contractor and a limited liability company.
0 Comments
Leave a Reply. |