3 Reasons You Need to Start an LLC


If you’re ambitious about building wealth, then starting an LLC is fundamental. An LLC will help you write off expenses, work with other businesses more easily, and protects you from liability.

You won’t get rich working for someone else. Rich means you can live off the interest of your investments without cutting into the principle. Without getting lucky with a trust fund or something, 99% of the time you will only be this kind of “rich” once you’ve built a business yourself.

Establishing an LLC is the first step—even before you’re tight on what you want your business to actually be.

The three big reasons you need an LLC yesterday:

  1. Separate yourself from liability
  2. Write off business expenses
  3. Easier to work with other companies

3. An LLC Separates You from Liability

It’s in the name. LLC means Limited Liability Company. You make a legal entity to separate the risk from yourself (otherwise called a “sole proprietorship” or sole prop for short).

If someone sues your business, you don’t want your personal assets at risk (house, car, investment accounts). An LLC helps mitigate that. Talk to a lawyer for the details because this isn’t real legal advice. I’m just letting you know why people do it.

“But I’m just running a social media business. Why would I get sued?” If you’re asking this, you still understand the impact of social media. One wrongly-worded tweet can go viral in all the wrong ways. A business can lose all its customers overnight. If the business hired you to manage their social media you were the one who hit “send” on that tweet, the business may try to go after you. They may not have a case, but why would you not take every reasonable step to protect yourself?

2. Start an LLC to Write Off Business Expenses

This is the big one. It can save you thousands of dollars a year in taxes.

Don’t buy yourself a personal computer. Buy a work computer you use at least some of the time on your business. It’ll cost you the same amount, but you get to write off the $1,500 dollar as an expense when you’re filing taxes at the end of the year.

Now, a word of warning. You can’t just make an LLC for your favorite hobby and then write off everything you like. You have to actually have a business. Do you love fishing? Create a fishing YouTube channel or Instagram account (or TikTok if you’re brave enough to hang with 15-year-olds) and post your adventures there. You need to do it with an actual plan to monetize your content. It helps to have that plan written down somewhere, even if the plan changes over time.

If you’re the only partner in your LLC, you’re going to file taxes as a single-owner LLC. Verify this by your state, because I am not a lawyer. For me, this means I file business taxes with my normal personal taxes. I’m not telling you how to do that, but just letting you know it’s not complicated and you don’t need to hire a tax accountant to handle it for you if your business is simple.

1. Starting an LLC Makes it Easier to Work with Others

Speaking of taxes, when you do contract work with other businesses, it’s preferable for companies to have an EIN for you instead of a social security number. An EIN is like your social security number for your business. You can get one for free on the IRS website.

You also don’t want to be handing out your social security number out in general. It’s a personal security risk since every financial service uses your SS number as a form of ID verification.

As an aside, they don’t have to send you a 1099 if they paid you less than $600 for your work. However, I hope you don’t try to get a bunch of small-time jobs for less than the $600 threshold just to avoid taxes. The time spent looking for cheap clients is not worth it when you could just have a few high-value clients—and it reduces what you’re worth per hour.

Start an LLC Before You Have Everything Figured Out

Why an LLC and not an S-Corp, C-Corp, or any of the other business legal bodies? The most obvious answer is an LLC is the simplest thing you can do. It cost me $50 and an internet connection to set mine up in the state of Colorado, and it was similar in Ohio, too. I wouldn’t try to make a C-Corp without a lawyer (and really, that’s something that only startups that plan on taking funding in exchange for shares need to worry about).

If you’re going to make a startup, great! But you still need an LLC for your personal business. The LLC will let you do short-term contracts, collect speaking fees, and write off business expenses much more easily. It’s a fundamental step for anyone trying to build their own wealth.

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