LLC vs Sole Proprietor: Which Is Best For Freelancers | Back To Basics

Brian Hood (0:00)

This is the 6 Figure Creative Podcast, Episode 251

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Hello, and welcome back to another episode of the 6 Figure Creative Podcast. I'm your host, Brian Hood. If this is your first time listening to the show, first of all, welcome. This podcast is for creative freelancers who are trying to earn more from their creative skills without selling their souls. You came on on a good or kind of weird time. I don't know, this is a series I've been doing. This is the first episode in that series called Back to Basics, where I'm walking freelancers through the basics of freelancing in a lot of different areas, and I have a lot planned for this. So if you missed episode 250, where I talk through the vision for this entire series, go back and listen to that. And also feel free to go through the other 250 something episodes of the show, because there's a lot here for you. If you're a returning listener of the show or a viewer on YouTube, thanks for coming back. This episode, I'm just going to get straight into it. We're going to discuss going LLC or sole proprietor. This is just for US based business owners. So if you're from other countries, I apologize, but that's just kind of what you get when you're going through the basics and we're talking about business things.

I can't cover every business entity in every country because I only know what's in the USA. So this episode, I want to dive into how long I avoided LLCs, why I avoided LLCs for so long as a freelancer, and ultimately what you should decide for yourself as a freelancer if you are trying to make the decision right now, should I be a sole proprietor, which is just I am doing business for myself by myself, or should I be a limited liability company? Now, there are some major differences between a sole proprietor and an LLC. They can look and feel the same. And there's a lot of things I've learned recently, which I'll talk about in a second. But let's first dive into what a sole proprietor is. When you start doing business in the US as a freelancer, generally is who I talk to and what you likely are. If you start doing any sort of commerce in the US and you don't have a business entity, you are by default a sole proprietor. That means any money you make as a sole proprietor or as a freelancer, it just gets taxed on your individual tax return. Let me stop here and just say, I'm not a tax attorney, I am not an accountant, I'm not a CPA. This is not legal advice.

I play a professional in the internet.

Take what I have to say with a grain of salt. That being said, I've been doing this for a lot of years, so I know some stuff, so I'm not a complete fraud. But when you start taking money as a freelancer, you are by default a sole proprietor. Without doing paperwork, now whether or not you're legal, that's a different thing. I'm just saying, without paperwork, you are by definition a sole proprietor. And that means the money you get should still be taxed, and you should still be paying taxes on it. Now the benefit here is there's no real like ass of red tape. Talk to a CPA, get things set up, make sure you have a DBA, which is Doing Business As.

So if you're doing business as a company like my old recording studio, 456 Recordings, I had my DBA, Doing Business As, set up as 456 Recordings, because I was the sole proprietor. My name is Brian Hood. I am an individual. I'm not a corporation. I wasn't back then. And so I was doing business as a business name, 456 Recordings, and I believe I even had a business permit. My CPA said to get one. And so I filled out some paperwork. I got a business permit. I got a DBA.

And lo and behold, I'm a legitimate business owner. I'm paying taxes. I have a CPA. It's wonderful. I don't have to file anything with the state. I don't have to do any annual report because I didn't know how to do any of that stuff. It just seemed overwhelming to me. I didn't want to deal with it. And so that's what I did for way too long. And here's the reason being a sole proprietor for way too long can get you into some trouble. When I'm 20 years old living in my parents' basement where I started my studio and I made $29,000 that first year in the studio, I don't have much risk on either side, although my parents might have been at risk. We're not going to get into that.