Topic: General Posts

Neeraj,

I did some consulting work while unemployed, and still do a bit here and there.  I considered setting up an LLC, but ultimately just reported income and expenses on Schedule C without incorporating.  You mention doing this "on the side", which suggests limited scope.  Unless you will have employees, require liability insurance, or work with a company that requires an EIN, you may find it simpler (and much cheaper) to forego incorporating until/unless things get serious.

Best,

Steve

Steve, thanks for your insights. Much appreciated.

Best,

Neeraj

I formed an LLC last year with the income flowing through to my tax return.  There are tax advantages for investing in IRA's for self-employed.  Otherwise, it's a bit annoying to file the annual state requirements and pay the business license fees. Hope that helps.  Good luck!

Thanks, Anna!

Neeraj,

I'm currently pursuing my masters in law (essentially an LLM but called a M.Jur) and for one class this semester's I wrote my paper on selection of enterprise structure to optimize wealth; my professor suggested I considser publishing it. Feel free to reach out to me offline and I can shae more deails. However in summary, as a sole practitioner some structures are essentially disregared by the IRS and pass directly through to you and are reported on 1040.  LLC, LP/LLP and S-corp structures (forget C-corp unless you plan to to go public or leave all earnings invested in the entity) will provide you limited liability protection; there are also some advantages if you have a spousal / family member who can be partners/members/shareholders. Under the new tax act you can take also 20% deduction on your business income under Section 199A but (BUT!) there are various threshold limits etc. including what services you offer i.e some professions law, accounting etc. are not eligible, but again there are $ thresholds/limits. In addition, you are subject to Self Employment taxes on (share of) earnings. However S-corps provide some potential ability to limit that total $ exposure; LLCs may (grey area depending on which commentators you follow) but tax courts have case law that precludes LLP partners obtaining ecemption where they provide the services that constitite bulk of LLP's income!

As others have commented, the various structures also allow for sheltering income via 401(k), SEP IRAs, and various other fringe benefits.  It's worth talking to a tax / wealth advisor.

I formed an LLC a few months ago, primarily because I was offered contract work but the hiring firm was only willing to contract with a corporate entity. As other have noted, there are various tax considerations which vary considerably from state to state, as do the costs of opening and maintaining a corporate structure (LLCs in NY are more expensive than most other states for example). In addition to being able to contribute up to 25% of your business income to an IRA (far exceeding the nornal annual limits when employed), you can also deduct your medical costs on a pretax basis (its an adjustment to Gross Income on Form 1040) if you meet certain criteria. As was already suggested, I would strongly recommend consulting a tax advisor to understand all of the particulars; it can be very tricky, particularly if you have income flowing through a corporate structure in the same tax year as wage and salary income.

Thanks for your advice, David and Jeff. Much appreciated.

Best,

Neeraj

Hi Neeraj,

I saw your post here on the FENG and perhaps you have all the answer you need. I'd love to compare notes with you. Feel free to call me at 404-919-7022. I just formed also.

Best, 

Sandy Petty MBA CPA CGMA