A loan-out is a personal company & legal business entity.
The individual, YOU, are technically employed by your own loan-out company.
Loan-out companies can take many different forms such as an LLC, an S-Corporation, or a C-Corporation.
ᴡʜʏ ʙᴇᴄᴏᴍᴇ ɪɴᴄᴏʀᴘᴏʀᴀᴛᴇᴅ?
There are a few benefits:
💰 Lower tax rates. While individuals are taxed on a sliding scale according to their earnings, corps are usually taxed a flat fee. The savings can be significant. This is because after the company pays taxes on everything it took in, then the employee must pay on whatever it was paid.
💰 Loan-out companies allow you to select a fiscal year. As a freelance individual, you’re taxed on the income you’ve made between January 1st and December 31st of any given year. A well-chosen fiscal year may stabilize your income and expenses by spreading a portion of them out over time.
ᴡʜᴇɴ ꜱʜᴏᴜʟᴅ ʏᴏᴜ ʙᴇ ɪɴᴄᴏʀᴘᴏʀᴀᴛᴇᴅ?
Once you start making between $50,000 – $75,000 in gross earnings, the advantages of having a loan-out could kick in. Anything below that and the fees associated with starting your loan out may not be worth the added benefits.
ʜᴏᴡ ᴅᴏ ɪ ꜱᴛᴀʀᴛ ᴀ ʟᴏᴀɴ-ᴏᴜᴛ?
1. Get your EIN number by filling out an application on the IRS website.
2. File Your Fictitious Name Statement by mailing it to your local county registrar.
3. File your Articles of Incorporation through your state (online).
Just make sure you do plenty of research first to decide if a sole proprietorship, joint venture, LLC, S-Corp, or C-Corp is the right choice for you.
Now for the fun part… what would your corp name be? 🤔