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I am looking at establishing myself as a freelancer in graphic design from home.

What are the advantages and disadvantages of a DBA vs LLC in the United States?

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  • Do you need to do either? Why not just work on a 1099 basis?
    – joeqwerty
    Nov 1, 2021 at 21:04

2 Answers 2

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In short, it seems a DBA is easier and cheaper to set up and maintain - but offers no liability protection. If a DBA makes a costly business mistake, their private assets are not protected.

It could all come down to your line of business. If you are a service provider with little to no inventory and no liability towards customers, a DBA seems sufficient.

However, if the business is successful, a LLC is probably needed if employees are to be hired. In addition, a LLC may eventually be sold.

Specifically for graphic design, a DBA could seem sufficient. Depending on your location and jurisdiction, there may be tax benefits to creating a LLC and perhaps some larger clients prefer dealing with LLCs.

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    Keep in mind the liability protection is going to depend on the State you are filing in. Many don't allow for asset protection anymore for Single Member LLCs. Mar 18 at 12:46
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As an independent computer contractor/consultant for many years, I worked as a Schedule_C/1099 dba until 1986, when Section 1706 of the tax code came into effect, e.g., http://digitalcollections.library.cmu.edu/awweb/awarchive?type=file&item=667927 After that, many potential customers who wanted contractors for one-time-only projects could only hire me as an employee, whereby my client base shrank drastically overnight.

So I pretty quickly incorporated as an S-Corp (LLC's didn't exist at that time) to recover my business. So I was the sole officer, sole shareholder, and sole employee. And one major advantage over Schedule_C is that some of the company's revenue can be given as a Schedule_K (on your corporate Form_1120S) distribution, rather than as W2 wages. Why would you want to bother? No social security fica withholding whatsoever on those Schedule_K distributions. And that can add up to quite a lot of money since both halves (employee and employer) of fica are coming directly out of your own pocket.

The IRS pretty much won't bat an eyelash if you keep Schedule_K distributions to some 40% of revenue, though I've known lots of fellow contractors who've done 60% and more without problems.

You can also provide health insurance (make absolutely sure to report it on W2 line 12), matching retirement benefits, etc, which your company claims as deductible expenses. And although Schedule_C/dba's can deduct lots of expenses like rent, etc, S-Corps (and I assume LLC's) have an even more liberal scope of deductions available.

The paperwork is significantly greater than Schedule_C, but you begin to get accustomed to it after several years. All-in-all, I'd say it's been well worth the extra effort, but it's certainly a personal choice you'll have to decide for yourself.

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