Forming your own LLC and doing contract work

[BigRichard]

I put in my resignation late last week. It was suggested today I might be able to do some contract work for them remotely which has me intrigued. Who on CP has formed their own LLC and done some contract work. Any suggestions on how to handle it? Would you go some other route?

[BigRichard]

Originally Posted by Buehler445

You didn't say, but if you're going to quit your job and do this instead, DEFINITELY do your due diligence. Then if you do it, save up a pile of money.

I've seen several fools do it and they blow through every dollar of revenue then something unexpected, like, "WHAAA I owe taxes? HERP DERP" and then they struggle.

Plus if you're going to do it, get yourself a solid understanding of your expense. Because while it is deductible, it isn't free. Know your expenses.

No, basically I took another job where I work from home and can work anywhere in the US. When i handed in my resignation it was mentioned maybe doing some contract work for my company I just resigned from. I am open to the idea just wasn't sure how to go about it.

[Buehler445]

Originally Posted by BigRichard

No, basically I took another job where I work from home and can work anywhere in the US. When i handed in my resignation it was mentioned maybe doing some contract work for my company I just resigned from. I am open to the idea just wasn't sure how to go about it.

Right on.

Is it IT?

If that's the case then you wouldn't necessarily need to set up an entity. They will just give you a 1099 and it will go on a schedule C. You'll owe SE tax (both the employer and employee portions of Social Security and Medicare), which sucks. No one hates tax more than this ****ing guy, but hey, you get to keep the net.

If you set up an LLC as a single member LLC it will go on the C. Same tax situation. If you tax it as a partnership there is a flow through return but it will be taxed the same. If you set it up to be taxed as an S Corp there is no SE tax, but you have to pay a reasonable wage, which the entity will have to pay the Social Security and Medicare, so, like Crow said, unless you're looking to do something other than just take all the money out, it is taxed essentially the same.

Where an LLC can help you is to shield yourself from liability exposure. I don't know the business you're in but that is definitely up to you to assess.

[BigRichard]

Originally Posted by Buehler445

Right on.

Is it IT?

If that's the case then you wouldn't necessarily need to set up an entity. They will just give you a 1099 and it will go on a schedule C. You'll owe SE tax (both the employer and employee portions of Social Security and Medicare), which sucks. No one hates tax more than this ****ing guy, but hey, you get to keep the net.

If you set up an LLC as a single member LLC it will go on the C. Same tax situation. If you tax it as a partnership there is a flow through return but it will be taxed the same. If you set it up to be taxed as an S Corp there is no SE tax, but you have to pay a reasonable wage, which the entity will have to pay the Social Security and Medicare, so, like Crow said, unless you're looking to do something other than just take all the money out, it is taxed essentially the same.

Where an LLC can help you is to shield yourself from liability exposure. I don't know the business you're in but that is definitely up to you to assess.

IT yes but a little more specialized into healthcare IT.

[mikeyis4dcats.]

figure out what they want to pay you. With taxes, you should be making at least 2x to 2.5x your previous wage to account for expenses and taxes.

[scho63]

LLC's are normally formed if the line of work you are going to be doing exposes you to a variety of lawsuits and liabilities such as construction, driving a vehicle, medical or anything else where you are a target for lawsuits so you can protect your assets.

If you are just a CONTRACT worker and doing tech work, game development, book keeping, project management you do NOT need an LLC and an S or C Corp is just fine.

What type of work will you be doing?

[Icon]

Originally Posted by scho63

LLC's are normally formed if the line of work you are going to be doing exposes you to a variety of lawsuits and liabilities such as construction, driving a vehicle, medical or anything else where you are a target for lawsuits so you can protect your assets.

If you are just a CONTRACT worker and doing tech work, game development, book keeping, project management you do NOT need an LLC and an S or C Corp is just fine.

What type of work will you be doing?

I agree. I worked self employed for 20 years and never formed an LLC or S/C corp because there was little to no liability.

The biggest disadvantage to being self-employed is that you have to pay your share of social security AND the employer's share so you're out of pocket social security tax is double. The other big one is health insurance.

[fan4ever]

Can I piggy bank on this thread?

I've never been sued and there are no pending lawsuits now. I recently acquired LLC status for my business. Since I've done this with no actions against my business in the works, does this protect me against work I've done in the past; before attaining an LLC?

[mikeyis4dcats.]

Originally Posted by fan4ever

Can I piggy bank on this thread?

I've never been sued and there are no pending lawsuits now. I recently acquired LLC status for my business. Since I've done this with no actions against my business in the works, does this protect me against work I've done in the past; before attaining an LLC?

I would think not. Your work prior to formation of the LLC is technically by a different entity.

[Buehler445]

Originally Posted by fan4ever

Can I piggy bank on this thread?

I've never been sued and there are no pending lawsuits now. I recently acquired LLC status for my business. Since I've done this with no actions against my business in the works, does this protect me against work I've done in the past; before attaining an LLC?

<---- Not a lawyer

Nope. LLCs and Corps are legally separate entities. Essentially it is like if someone else is doing the work now. What you did before doesn't matter.

At least that's my understanding.

[kccrow]

Originally Posted by Buehler445

There is no initial cost. In Kansas anyway.



This is not correct. All business expenses are deductible with either entity. S Corps are pass through income rather than self employment, but you have to pay yourself a reasonable wage. See Crow's comments.

Definitely talk to an accountant. There will be a return to file, plus you have to keep a set of books, so whatever you do make sure they're on board.



Really, you don't need to. In Kansas you just have to apply through the SOS website and fill it out. If it's a single member LLC, you won't need an operating agreement per se. If you have a partnership definitely see an attorney so either party gets ****ed.



Don't think so, you just have to file the return in the state that it is formed.



The bolded is the crux of the issue. And the way I try to explain it to people is if you want to do anything that are balance sheet activities, purchase assets, service debt, retain earnings, build operating capital, all don't hit the income statement (and tax return), that makes it make sense for an S-Corp.

I don't know the rules if it is a single member LLC, it may not be able to be taxed as an S-Corp. Talk to your accountant.

I'd do it. For me, it made me start treating my business as a business and made me a better businessman. Not that I didn't know what I was doing on the business side of things, but having it separated forced me to do a little bit of it and made it far easier for the rest of it.

Yes, you can elect S-Corp status as a single-member LLC. You must file Form 8832 to elect to have the entity classified as an association taxable as a corporation, then you must file Form 2553 to elect to be treated as an S-Corp.

It will be important for the OP to determine how he wants to do things and seek out specific guidance. If you intend to declare as an S-Corp, then it is important that you 1) Pay yourself a salary and 2) that salary be justifiable and reasonable in the eyes of the IRS, else you would be in for a ride.

I wasn't overly clear in my original post about too much because I'm not offering this as a service to a client and would rather you seek out your own CPA to help you, but ...

If you elect S-Corp status as an LLC you do get some benefits...

1) You are paying yourself a reasonable salary and as such only have to pay OASDI/Medicare on that salary. The salary is a deductible expense of the business and reduces "net income."

2) As such, you won't pay OASDI/Medicare on ALL income as you would in the case of an LLC or any other pass-through classification.

3) As well, since salary is taken from income, you will not pay income taxes on that salary. This reduces your income tax burden.

4) Consult a tax professional on the exact in's and out's of the 20% deduction associated with having a pass-through entity. This is outlined in the Tax Cuts and Jobs Act, Provision 11011 Section 199A. I'm not abreast on it overall but I know there are limitations on income and wages paid.

5) There is different tax paperwork and overall paperwork to file with the IRS if you elect to be treated as a corporation and then an S-Corp. A sit-down with an Accountant to go over everything is paramount for you (not a ****ing Lawyer).

[BigRedChief]

I’ve been doing contract work in I.T. for 15/22 years. Never did a LLC or S-Corp. W2 only. What liability do you have doing I.T. Work?

They changed the tax laws about home offices so even that’s not worth it. I’m assuming we are not talking I.T. But some work with a possible liability, correct?

[kccrow]

I forgot to mention, and Buehler hit it hard... So many "Want-To-Be" businessmen struggle at understanding the importance of treating business as a business and separating that business from personal. As an accountant, I'm not going to put your bag of Skittles, can of chew, dinner with your wife, and whatever else in as a business expense. It's going to go in as an Owner's Draw.

Speaking of Owner's Draw... the resultant income of the business from what I said in my above post may be retained in the business or taken as a Distribution.

[kccrow]

Originally Posted by BigRedChief

I’ve been doing contract work in I.T. for 15/22 years. Never did a LLC or S-Corp. W2 only. What liability do you have doing I.T. Work?

They changed the tax laws about home offices so even that’s not worth it. I’m assuming we are not talking I.T. But some work with a possible liability, correct?

It's different when you are a W-2 Employee of the company you're doing the work for versus being a 1099 Subcontract Entity.

[BigRedChief]

Originally Posted by kccrow

It's different when you are a W-2 Employee of the company you're doing the work for versus being a 1099 Subcontract Entity.

Of course. Totally different.

[kccrow]

Sorry Chief... hit post too soon... Your primary liability is going to be errors and ommissions and breach of contract.