Consultants & Independent Workers in CA can set up an LLC to avoid AB5 confusion

General

The recent AB5 Bill in California has an unfortunate effect of creating a disadvantage for legitimate use cases and work arrangements and can end up inconveniencing small business and indecent workers and consultants.

Every situation is different. But if you are a single, independent contractor, one thing you can consider is to set up a sole-proprietor LLC. This way when you contract with a firm they are engaging with your business, not with you as an individual and it prevents any liabilities or confusion around you being an employee.

If this applies to you, here are some steps that explain how to do that. Please note this is not advice in any way. Just a resource for you to review. Please consult a professional for actual advice for your specific situation.

  1. Setup a sole-proprietor LLC (costs $800/yr that you owe to the FTB in CA)
  2. Get an EIN from the IRS for the LLC (and starting using that instead of your SSN)
  3. For clear separation, also get a separate bank account tied to the LLC and take all payments / deposits into that. And a separate Credit Card to keep business expenses separate.
  4. For tax purposes, all LLC income passes on to you as your income and you report it into your personal tax return with a schedule C.

It’s an overhead for sure, but might be a competitive advantage as firms are more likely to work with you knowing there are no surprises to be concerned about.

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