Single Member LLC for Part-Time Consulting?

[TxPete]

Hello! First post. I could use some advice/guidance as I'm sure I'm not the first doc to address this.

I am currently working full-time, W2, etc. I was offered the opportunity for part-time 1099 consulting work, relatively small but steady monthly income. Mainly clinical, chart, med, protocol review done from the computer during my evenings/weekends. Is it worth it to set up a single-member LLC for this type of work? Is there really any risk of liability that setting up an LLC would necessarily protect me from?

I work in Texas, so setting up LLC will be $300 and yearly franchise tax paperwork (though the bill is $0 when revenue is below $1 million)

Anyone else deal with this issue in the past?

Thanks!

 

[LBKCLU]

If you are only consulting and you will be the only employee, setting up an LLC will not shield you from any malpractice liability and is probably not worth it. If you were going to be earning a lot (a few hundred thousand dollars annually), then it would likely be worth incorporating due to potential tax savings.

[TxPete]

Thanks for the response! Makes sense.

Another quasi-related question - is there any need for malpractice insurance coverage for this type of consulting? I can understand where there is direct patient care, but for chart reviews? I'm not sure if my current malpractice covers this type of thing. Would an umbrella policy be applicable here?

 

[VagabondMD]

I have done a variety of consulting activities over the years, generally between $2500 and $10,000 per year, and file Schedule C.

[childay]

If you are taking some "director" position etc and getting paid I would think you need malpractice.  After all they will sue anyone with any chance of responsibility.  Otherwise I doubt the LLC would benefit you much (aside from potential tax benefits, s corp etc as mentioned above).  Liability from chart reviews only is presumably low (compared to patient care etc).

[The White Coat Investor]

You don't need an LLC unless you want to file an S corp return. No liability protection there, but it might look more legitimate to some you'll work with. My LLC in Utah was $70 plus $15 a year.

[jfoxcpacfp]

The White Coat Investor wrote:

You don’t need an LLC unless you want to file an S corp return. No liability protection there, but it might look more legitimate to some you’ll work with. My LLC in Utah was $70 plus $15 a year.

Click to expand...

Why would you need an LLC to file an S corp return?

[The White Coat Investor]

jfoxcpacfp wrote:

The White Coat Investor wrote:

You don’t need an LLC unless you want to file an S corp return. No liability protection there, but it might look more legitimate to some you’ll work with. My LLC in Utah was $70 plus $15 a year.

Click to expand…

Why would you need an LLC to file an S corp return?

Click to expand...

Only corporations or LLCs can file corporate tax returns. Sole proprietors can't. An LLC is simpler, so if your only goal of forming a corporation is to get it taxed as an S corp, might as well just be an LLC and get taxed as an S corp. With the LLC you can choose between filing as a partnership or as a corporation.

[jfoxcpacfp]

The White Coat Investor wrote:

jfoxcpacfp wrote:

The White Coat Investor wrote:

You don’t need an LLC unless you want to file an S corp return. No liability protection there, but it might look more legitimate to some you’ll work with. My LLC in Utah was $70 plus $15 a year.

Click to expand…

Why would you need an LLC to file an S corp return?

Click to expand…

Only corporations or LLCs can file corporate tax returns. Sole proprietors can’t. An LLC is simpler, so if your only goal of forming a corporation is to get it taxed as an S corp, might as well just be an LLC and get taxed as an S corp. With the LLC you can choose between filing as a partnership or as a corporation.

Click to expand...

If you want to be an s-corp, starting as an LLC is just an extra step for a CPA or attorney to bill for. Of course, you can DIY, but most people don't There is no more liability protection with an LLC/S-corp combination than a stand alone of either. If you want to be a partnership, simply set up an LLC. If you want to operate as a corporation, set up a corp and file the form 2553. But a lot of people have the misguided notion that there is another layer of protection with an LLC-S-corp, which is not true. Sure, an LLC allows you to elect to file as a corporation, but if you're not sure what structure you want to operate under, you're not ready to file for either. And there is no benefit to being an LLC if you are an S-corp and decide to unwind into the LLC - it's the same tax effect as starting a new LLC.

[The White Coat Investor]

Good points. The LLC does have the benefit that you can start filing sole proprietor/partnership and then change to S corp without incorporating though, for whatever that's worth.

[TxPete]

thanks for the discussion. I decided to keep it simple and forego the LLC in favor of sole proprietorship. my current malpractice actually covers administrative duties like this as well as my indirect medical opinions.

now to set up a solo 401k...

[spiritrider]

An LLC is a state chartered business entity. An LLC that elects subchapter S tax treatment does not change its business charter. Therefore, an LLC/subchapter S is not exactly the same as a Corporation/subchapter S (S-Corp). In some states, the annual costs can be less for the former and greater for the latter. That is one reason many people go the LLC route. Although the cost savings should be much less important at a doctor's revenue levels.

For doctors, there is a reason a LLC (Limited Liability Company) gets its name. This does not change because its tax status changes. However, your liability for personal acts does not get some magic protection from a true S-Corp. As has been previously stated, you still need malpractice insurance and should consider business liability insurance and/or umbrella insurance.

What an LLC (with and without subchapter S election) and an S-Corp get you are some degree of protection from the operation of the business. For example, protection from creditors. Although, in many cases it is difficult to get credit for the business without a personal guarantee from the owner of the business.

The bottom line is that you really should get professional guidance on the decision of business structure. As I have just briefly touched on, there are lots of tradeoffs which can be state/locally dependent. Only someone who has local knowledge and can evaluate the specific circumstances of your business can really give you the best guidance.

The internet can be a good source of general information, but not necessarily something you should rely on. Yes, it will cost some money, but it usually well spent. Think cost benefit analysis. Compare the startup cost of the proper business structure vs. the revenue over decades.