do i need an llc to freelance

Do I need an LLC to Be a Freelance Fashion Designer?

You’re a freelance fashion designer, not a business major or accountant. Which is why you’re not expected to know what business entity is the best (or if you even need one)! Let me be honest, “Do I need an LLC to freelance in fashion?” is a question I hear alllll the time! 

You’re not alone. Many freelancers and independent contractors aren’t sure what option is right. And it’s totally normal to get a little blurry-eyed reading through your options.

I’ve got you covered in this comprehensive guide. We’ll explore all angles – from EINs and separate bank accounts, right through different types of business entities like sole proprietorships, LLCs, S-corps…and their pros and cons too!

The tax benefits? The legal protection offered by these entities? How do they affect your bottom line? It’s all here!

Get ready to figure out the best fit for YOU as a freelance fashion designer. 

(And psst! If you need help on everything else about freelancing like finding clients, portfolios, pricing, and more check out my free Step-by-Step Guide to Being a Freelance Fashion Designer.) 

Quick disclaimer! I am not a trained or certified legal professional or accountant, and none of this is to be deemed legal or financial advice of any kind. Opinions are my own.

Why am I qualified to write about this stuff? In my 15 years of experience in the fashion industry, I’ve journeyed from being an in-house designer, starting my own brand (yep!), to growing my freelance career to $100,000+. Now, with all the knowledge I’ve learned along the way, I want to help fashion designers (and PDs, TDs, etc.) like you make it in the industry.

Table Of Contents:

Do I Need An LLC to Freelance in Fashion?

As a freelance fashion designer, you’ve got talent, drive, and an eye for style. But there’s one question that keeps nagging at you: Do I need an LLC or business entity to freelance?

Are you a freelancer? Or are you a business owner?!

The short answer is no; it’s not necessary to form a separate business entity like an LLC or S-Corp when starting out. Many designers operate under their own name as sole proprietors.

Though it’s not a requirement, forming an LLC or S-Corp may still be worth considering. Having your own business entity can give more legal protection, prevent you from being personally liable, and offer tax benefits down the line. Oh, and also, if you grow to where you want to hire employees, you’ll need to set up a business entity!

Let’s take a look at your options, but first, the TL;DR.

The TL;DR of Business Entities for Freelance Fashion Designers

This is my opinion, based on what I know of 10+ years freelancing in fashion and my experience running multiple businesses.

Depending on what state you live in, an LLC is usually your quickest and easiest option to set yourself up as a business and create a little legal protection. Do some googling for your state, and you can likely set this up online in an afternoon for a small fee (here’s a full run-down of LLC filing and report costs by state).  

However, an S-Corp will provide you with many more tax benefits. When you’re just getting started and aren’t earning a lot, it may not be worth it to go this route. The initial and ongoing fees will not be justified. But once you hit $40-50,000/year in income, forming an S-Corp can save you enough money on taxes to offset any setup and management costs.

If you decide to set up an S-Corp, I advise getting professional help. Back in 2012 and 2016 when I set up both of mine, I hired a CPA and lawyer to help me. Now, many online services and one-stop shops will file it and take care of all the paperwork for a much lower fee than outsourcing to individual professionals. I’m not an affiliate for any, but if you google “set up s-corp for freelancer,” many options will come up. Do your research and get started!

Now, if you want to nerd out a little more with me, keep reading for allllll the details!

Sole Proprietorship vs Business Entity

A sole proprietorship, in essence, means you are your business—there’s no separation between personal and professional assets, and all finances run through your personal tax return.

The alternative is setting up a business entity, something like an LLC (Limited Liability Company). This creates some distance between you as a person and your freelance work, and for tax purposes, setting up a biz can make a lot of sense.

EINs & Separate Bank Accounts

An EIN (Employer Identification Number) isn’t mandatory unless you decide to form an LLC or other corporation type. But having one could simplify things with clients who might prefer working with a “business” rather than an “individual.”

Whether or not you formalize into a specific structure, it can make sense to have separate bank accounts for professional income/expenses versus personal ones. This will make tracking finances and your business income simpler come tax season. 

Pro tip: In my decade of freelancing in fashion, I always operated as a business (first an LLC, and later an S-Corp). However, I never had a client who required an EIN, and of my hundreds of FAST students, I don’t know any who’ve experienced this either. I’ve had a lot of freelancers tell me that once they got an EIN, or opened a separate bank account, they started taking their freelance business more seriously! Treating it as its own entity causes a shift in your brain that can increase motivation. Whatever you do, make sure to set up a business bank account with NO fees, and NO minimum balances. Many large banks like Chase can cost a lot unless you meet certain requirements, so call around to local banks or credit unions. (I have done my business banking at a local credit union for years; they’ve treated me very well, and I’ve never paid a dollar in fees for anything!) 

State Registration

What about registering with your state? State registration is a good idea if you’re using any business name other than your own legal one. This is often known as an “assumed name,” “DBA” (Doing Business As), or “trade name.”  It depends on where you live, but just google for “register trade name in [state]” to figure out how. In most states, you can do it online for a small fee. 

So, where does that leave us? Starting off as a sole proprietor works for many freelance fashion designers. But forming a more formal structure like an LLC could be beneficial in the long run, and an S-corp can offer huge tax advantages once you earn over a certain threshold.

Let’s look more closely at the different entity types, pros and cons, and which may be the best for you.

What Are the Different Types of Business Entities for Freelance Fashion Designers?

As a freelance fashion designer, you’ve got talent, drive, and a head full of ideas. But there’s more to freelancing than creativity. It’s time to talk about business entities.

A business entity creates some structure under which you work—it helps define how you operate professionally and interact with clients and tax authorities. (Yep, freelancers have to pay their own taxes! Don’t worry, tax obligations are not as scary as it sounds, and some of these entity options will provide great tax shelter!)

Sole Proprietorship

The simplest option as a freelancer is operating as a sole proprietorship. This means that you’re running your business as an individual—no separate legal or tax structures needed, and everything goes through your personal annual tax returns. You can get started right away without any formal paperwork—but remember this also means personal liability for all business debts.

The Pros and Cons of Sole Proprietorship for Freelancers

As a freelance fashion designer, going solo with a sole proprietorship can seem like the easiest path. You call the shots, right? Despite the appeal, there are potential drawbacks.

sole proprietorship for freelancers

Easy to Setup

A major pro is how easy it is to start. With no need to file complex paperwork or pay steep fees, you can quickly get your business off the ground. You literally just start freelancing and can funnel everything through your personal accounts and social security number.

Taxes Are Simpler But Higher

On one hand, tax time is simpler because business profits are treated as personal income. But this also means potentially higher taxes compared to other entities like an LLC or S-Corp.

There’s A Lot of Liability

The biggest drawback? Liability. If something goes wrong in your freelancing venture – say a client sues you over design copyright issues – then guess who’s responsible? That’s right: YOU. Your personal assets (house, car, etc) could be at risk if things go south since there’s no separation between owner and business in sole proprietorships.

Pro tip: I have never been sued, nor do I know a freelancer who has been sued, but anything can happen! As a freelancer, do the right thing, be ethical, and if something feels shady, back out.

Limited Liability Company (LLC)

An LLC separates personal assets from professional ones—a safe move if you want protection against lawsuits or debts tied to your freelance work. Forming an LLC requires filing paperwork with the state where you’ll be doing most of your work but offers peace-of-mind benefits.

(There are such things as single-member LLCs and multi-member LLCs, which I won’t go into in detail. Basically, it’s the difference of whether the LLC is just you as an individual person or if there are multiple LLC members – maybe you and your spouse or business partner.)

The Pros and Cons of an LLC for Freelancers

When you’re a fashion freelancer, forming an LLC can seem like the next big step to take in your career. In most cases, this is the most cost-effective and simplest way to quickly set yourself up as a business and separate your freelance career from your personal life.

Limited Liability company (llc) for freelancers

You Get Legal Protection

An LLC offers protection from personal liability. If something doesn’t go as planned in the business, it won’t be connected to you individually but rather to your organization entity.

You Get Tax Flexibility

You get some say on how you’d like to be taxed when operating under an LLC. You could choose pass-through taxation or corporate taxation depending on what suits your financial situation best.

There’s Some Paperwork

To start, there’s more paperwork involved in setting up and maintaining an LLC compared to sole proprietorship. But, it’s usually not much. Depending on your state, it’s likely a few hours once a year. Personally, I would not let this be a reason *not* to choose an LLC!

There Are Costs

Another downside is cost – forming and running this type of business structure may require paying certain fees which vary by state. Also consider annual report fees that are typically associated with maintaining the status of your company as well. However, the protection and tax benefits you get will likely outweigh any costs for an LLC. 

Here’s a full run-down of LLC filing and report costs by state (varies drastically!).

S-Corporation (S-Corp)

Last up is an S-Corp status. My personal favorite! An S-corp isn’t technically a type of business structure—it’s more like an optional ‘upgrade’ that allows corporations (and some other entities) certain tax advantages. (Read: it can save you a lot of money, but it usually doesn’t make financial sense until you’re earning $40-50,000 or more a year.)

The Pros and Cons of an S-Corp for Freelancers

You may have heard other freelance fashion designers talk about S-Corps. It can get confusing! For example, you can operate as an LLC but file taxes as an S-corp. It’s a great way to decrease paperwork but still get the tax benefits. If you want to go this route, consult with your CPA or a trained professional because I won’t be diving into the logistics!

For now, we’ll break down the big advantages and drawbacks of operating as an S-corporation.

S-Corp for Freelancers

Big Tax Advantages

An S-corporation (S-corp) gives your business superpowers in terms of tax benefits. As an owner, you’re considered both an employee and a shareholder. This lets you split your income between salary and dividends – effectively lowering your self-employment taxes. It can save you A LOT of money. 

HOW much money? On a $100,000/year freelance salary, you can save upwards of $6,000+ on taxes alone by filing as an S-corp. YIKES!

You Are Personally Protected

The S-corp structure offers limited liability protection which can be crucial if legal issues ever arise. Just like the other business entities, you as an individual are protected from any work you do through your business.

There’s Some Paperwork

Setting up an S-corp means more paperwork than a sole proprietorship or LLCs. Plus there are ongoing administrative tasks to handle each year – think annual reports and corporate minutes. 

Pro tip: Once it makes financial sense to operate as an S-corp, the financial tax advantages can often be enough that it also makes financial sense to outsource the filing and paperwork. I have never handled my own S-corp logistics!

Ownership Restrictions

Usually never an issue for freelance fashion designers, one major drawback is ownership restrictions: You cannot have more than 100 shareholders in an S-corporation. Your freelance business, even if you grow it into a small agency (like many of my FAST students have done, including Connie Bourgeois, who now has a team of 6!), will likely never run into this problem. But it’s something to keep in mind. (Also worth noting is that non-US citizens/residents can’t be owners.)

Just like in fashion, one size never fits all. So, here’s a high-level overview for you to pick the best business entity for you.

What Business Entity is the Best For Freelance Fashion Designers?

As a freelancer, the entity you decide to operate under can have major fiscal effects and offer varied levels of protection. Whether you opt to work as an LLC, sole proprietorship, or S-Corp, each comes with its unique set of implications.

The first step is to ask yourself key questions. 

What sort of legal safeguards do you require? How much tax flexibility do you need? Does your income level warrant filing & report fees?

Understanding your needs can guide you toward the best business entity for your freelance fashion career.

Each option has its pros and cons. So think about what makes sense given your specific situation—your work style, financial goals and tolerance for paperwork (or budget to outsource it) are all factors.

Here’s a final high-level rundown of each business entity type as you think about your decision. 

Sole Proprietorship: Simplicity but Limited Protection

In a sole proprietorship, profits and losses pass directly through to your personal tax return. This simplicity is appealing, but it leaves your personal assets exposed if legal issues arise.

LLC: Balance between Liability Protection and Tax Flexibility

Forming an LLC (Limited Liability Company) shields your personal property from potential lawsuits related to your freelance business. However, this protection isn’t free – there are setup costs and ongoing state fees involved.

S-Corp: Potential Tax Savings with Increased Complexity

If you are willing to handle more paperwork (you can always use a service to do this for you; I have never managed my own!), becoming an S-corporation might be worth it because it lets you save on self-employment taxes in some cases.

Pick a Business Entity and Start Freelancing!

If you’re getting hung up on the business and legal side of things, don’t let this be a reason to stall! I talk to way too many freelance fashion designers who get stuck here, not taking action just because they’re unsure about all this stuff.

My best advice? Keep it simple. Pick something. And get started!

That may be kicking off as a sole proprietor or forming an LLC. Unless you’re already making $40-50,000/year, an S-corp won’t make sense financially. (You’ll be there in no time! And if you need help, check out my Step-by-Step Guide to Being a Freelance Fashion Designer.) 

Last, friendly remember that this article does not constitute legal advice and I am not a tax pro!


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