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- Mar 9, 2007
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Anyone know if you can incorporate as a resident? Does this make sense to do?
Also, as you go on through your professional career, you will find that there is a jargon unique to the financial world. I'm not nitpicking, but I would like to point out that "incorporating" and "forming an LLC" are two very different things. LLC actually stands for Limited Liability Company, and is an entity that is very different than a corporation. While both entites provide business owners with some amount of protection from certain risks, LLC's that have only one member are not even recognized by the IRS as a distinct taxable entity unless an election is filed with the IRS.
LLC=Limited Liability Corporation, not company. LLC is a form of a corporation, but a corporation isn't always an LLC.
I understand what you're saying that "incorporating" is not associated with a Limited Liability Company and that the jargon was misused, but why is it that one of the initial documents in forming both an LLC and an Inc/Corp is the "Articles of Incorporation"? Maybe they misused the jargon as well.
While we are nitpicking: The document I have in front of me to form an LLC is called 'Articles of Organization'.
And if you're looking to shelter some of your income by setting up a tax-advantaged retirement plan, you can set up an equivalent retirement savings plan for your sole proprietorship as you could for a corporation. These days, self-employed individuals are setting up Solo 401(k) plans, SIMPLE IRAs, or SEP IRAs.
So you'll treat your LLC as a sole proprietor when preparing your taxes. This can be a good thing, since if you hit the social security max through your employer, you won't need to pay any social security taxes on this additional income. You'll only pay the 2.9% Medicare tax.
You also asked about setting up a retirement plan for your separate business. You sure can. Provided you don't own the majority of stock in your other employer, you can set up a SEP IRA, and put away 20% of your net self-employment income into a tax-deferred account. You also get to deduct the contributions made into the SEP.
It's not too late to establish and fund a SEP for 2007. You have until the due date of your tax return, including extensions, to set up and contribute to a SEP for the prior year.