Forming a LLC for a 1099 job?

[Dred Pirate]

So I have the opportunity to do some consulting work as a side gig (IRB work)- income in the neighborhood of 20k with likelihood to increase as I desire.

My question is - this is 1099 work, and would there be any advantage in forming a LLC - i know several of you do 1099 sidework and wondering if you all have LLC? From a tax perspective, I don't think there is any advantage (since it would be a single member LLC). I also would not have any real expenses to deduct (work from home, so no travel, etc)

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[deleted813736]

you can still deduct expenses even if you dont form the LLC. really the only benefit i believe is the 20% pass through tax deduction for that income but only if you don't make more than 164,900 total including your W2 job.

Btw expenses can include: the home office that you will work from at home, your laptop/computer that you use, food, etc. theres always deductions if you try hard enough

 

[Dred Pirate]

you can still deduct expenses even if you dont form the LLC. really the only benefit i believe is the 20% pass through tax deduction for that income but only if you don't make more than 164,900 total including your W2 job.

Btw expenses can include: the home office that you will work from at home, your laptop/computer that you use, food, etc. theres always deductions if you try hard enough

thanks - ya - so make more than that - deductions will be limited since it is just a few meetings here and there and prep work, but any thing to save a dollar I will take.

 

[JacobMcCandles]

There's no reason to in this situation.

 

[sloh]

I'm a 1099 and originally had an LLC. Did away with it bc it's not worth my cognitive bandwidth.

 

[Dred Pirate]

There's no reason to in this situation.

sounds good, I didn't think so, but wanted to check with others. I have two colleagues that do this exact same thing - one has an LLC and one doesn't - the one who does has a bunch of other consulting side work - he says it helps for tax purposes (not sure if it does) and liability protection (again, from what I read a single person LLC isn't really treated much differently than a single proprietorship.

 

[JacobMcCandles]

sounds good, I didn't think so, but wanted to check with others. I have two colleagues that do this exact same thing - one has an LLC and one doesn't - the one who does has a bunch of other consulting side work - he says it helps for tax purposes (not sure if it does) and liability protection (again, from what I read a single person LLC isn't really treated much differently than a single proprietorship.

He's mistaken on the liability protection and likely mistaken on the tax part. But, I'm sure his accountant suggested otherwise.

 

[oldtown]

The tax advantage of forming a LLC, if you classify it as a S Corp is if you pay yourself a W2 income, you don’t have to pay the Medicare tax (3.8% I believe) on the business profits (Total business income minus W2 income that you pay yourself).

You have to pay yourself a reasonable W2 income though, and you are still responsible for social security taxes up to the income threshold (somewhere around $140K these days).

This is all useful if you’re making $200K+ through your LLC, but if it’s just for side gig income of $20-30K, not worth it.

 

[JacobMcCandles]

The tax advantage of forming a LLC, if you classify it as a S Corp is if you pay yourself a W2 income, you don’t have to pay the Medicare tax (3.8% I believe) on the business profits (Total business income minus W2 income that you pay yourself).

You have to pay yourself a reasonable W2 income though, and you are still responsible for social security taxes up to the income threshold (somewhere around $140K these days).

This is all useful if you’re making $200K+ through your LLC, but if it’s just for side gig income of $20-30K, not worth it.

Generally, the amount of income where an S-Corp might start to make sense is much higher than $200k. Closer to $400k+. Most people who think they'll save money with an S-Corp won't. The trick is finding a good accountant who actually knows the numbers. Those seem pretty few and far between.

 

[oldtown]

Generally, the amount of income where an S-Corp might start to make sense is much higher than $200k. Closer to $400k+. Most people who think they'll save money with an S-Corp won't. The trick is finding a good accountant who actually knows the numbers. Those seem pretty few and far between.

OP is a pharmacist, they typically make around $135K per year, so I tailored the “worth it” threshold to reflect that.
For an ER doc, I agree with the $400K threshold. Pay yourself $305K so you can max out 401K at $61K/year, and save Medicare tax on the business profit.

 

[sylvanthus]

I'm a 1099 and originally had an LLC. Did away with it bc it's not worth my cognitive bandwidth.

Im debating dropping mine, they harass me monthly for taxes and I have zero side gig income atm. Also my “annual report” and other nonsense is just irritating atm.

 

[Dred Pirate]

OP is a pharmacist, they typically make around $135K per year, so I tailored the “worth it” threshold to reflect that.
For an ER doc, I agree with the $400K threshold. Pay yourself $305K so you can max out 401K at $61K/year, and save Medicare tax on the business profit.

Ya. Luckily I am higher than the average by a good chunk for my profession. Over the ss maximum so I know that is one bend point in regard to some tax benefits. I already have access to a 403b and 457 so plenty of tax deferred space as well. I figured I would ask in this forum since 1099 jobs are much more common for you all than my profession.

 

[sloh]

Im debating dropping mine, they harass me monthly for taxes and I have zero side gig income atm. Also my “annual report” and other nonsense is just irritating atm.

Same, I was tired of getting harassed and having to follow up on this. Time is MONEY. Especially as a 1099, I can just see more patients which is a better use of my time.

 

[JacobMcCandles]

Ya. Luckily I am higher than the average by a good chunk for my profession. Over the ss maximum so I know that is one bend point in regard to some tax benefits. I already have access to a 403b and 457 so plenty of tax deferred space as well. I figured I would ask in this forum since 1099 jobs are much more common for you all than my profession.

If you're over the SS maximum income at your regular job, it would be pretty rare that an S-Corp would make sense.