New LLC but thinking of dissolving?

[ShahMD]

Hello all,

I had a question about Sole Proprietor vs. PLLC.

I am a ER doc working as a W2. Next year I was planning on doing some 1099 work on the side. One of my friends suggested I form a PLLC as that was the only way to obtain 1099 income so I went through legal zoom to form the PLLC. Obviously that was incorrect information and I should have spoken with a tax professional prior to doing this. That was my dumb mistake.

Since it's a PLLC and I am a physician, my understanding is that it won't matter since liability just transfers straight to me because its a PROFESSIONAL LLC. Otherwise, my PLLC is practically useless and was a waste of money and a lesson learned.

My question is this: I just received my EIN and other forms from Legal Zoom but don't want to complete the process in NY state (sending back the S-4 form and apparently publishing in a NY newspaper that my LLC has formed along with more fees). Should I just dissolve the PLLC and just apply as a Sole Prop? I suppose I could call Legal Zoom and ask them to dissolve this? I will still have to do quarterly taxes as a Sole Prop with a tax professional I assume. Does anyone have any advice on this? If I don't earn any 1099 income in a quarter, will I still need to do taxes that quarter? I really don't see the need for a PLLC anymore because I will just be using a sole prop. Do I need to talk to the IRS also because I have an EIN at the moment? When doing taxes as a SoleProp, will I just use my own SSN instead? I'm really confused about the whole situation and could use some guidance.

Thank you so much for your help and I greatly appreciate all your responses. I'm a little nervous about this but could really use some reassurances. Thanks again for everything.

[jfoxcpacfp]

A lot of questions! Dissolve and report as SP under either your SSN or an EIN. You really need to have a CPA if you operate a side business.

[Clueless]

Hi

I also have a question re: LLC, I would love any input (and I apologize if a similar post is posted/answered elsewhere, I tried to search before posting).

I am employed with a group practice and make the majority of my income there.  However, I also work as a consultant and receive 1099 income (last year >~32k, the year before 50K...).  I was thinking about getting an EIN to open an i401k (my employer does not offer a retirement plan), but then the issue of LLC vs sole prop came up.

Questions:

1) If I create an EIN as a sole prop and decide later to start my own practice, could I still use that same EIN from my sole prop for my LLC?  Or would I have to redo all the paperwork?  I am thinking that if I just bite the bullet and open an LLC now, it will save me hassle later on.... is this the correct way to think about it even if I end up not opening up a practice of my own?  When does one need an LLC in my type of situation?

2) If I go the LLC route, are there any disadvantages vs sole prop besides the cost (I know this is a lot to ask)?

3) Does it matter what date you put for "date business started" (starting a new business is the closest match as to why I would be acquiring one) on the EIN application?

4) With 32k income from 1099 could you help illustrate the maximum I could put away into my i401k (employer/employee)?  I read some other posts where it was actually lower than what others thought it could be.....

5) Is there any other input I didnt even think to ask that you can provide?  Thank you so much!!!!!!!

 

[spiritrider]

(1) A one participant 401k plan is still an employer 401k plan. IRS regulations do require income from an associated trade or business to contribute to a 401k plan. If you were just a sole proprietor and you filed for multiple related businesses on the same Schedule C, you could contribute from all the income to the 401k. However, the IRS does not generally allow you to use the same Schedule C from different unrelated businesses.

Some 401k providers (Fidelity for one) do allow one-participant plans to be multi-employer plans. In other words you can add additional unrelated businesses to the adoption agreement. However, remember as soon as your practice has eligible employees, you can no longer have a one-participant 401k for that business.

(2) It really depends. As you already seem to understand an LLC does not generally provide liability protection on the professional services performed by an LLC member. However, once you have employees, it does provide protection to their actions. Also, as a practice, you might start to have creditor liability. This is a very complicated area and requires expert professional advice from someone knowledgeable of your particular circumstances and state specifics. LLCs may have been enacted based on a model law, but each state can have specific provisions and case precedence.

(3) You should make the effective date of a 401k adoption agreement from when you want to base the contributions on. Typically you would want to make this retroactive to January 1st.

(4) On a net business profit of $32,280, you can make an employee elective deferral of $18,000 and an employer contribution of 20% of (net business profit - 1/2 SE tax = $30,000) = $6,000 for a total of $24,000. The only time I am aware of that it might be lower is a special circumstance when with an $18,000 deferral and net business profit - !/2 SE tax < $30,000.

[jfoxcpacfp]

In re: Clueless

1. Yes


2. Not that I can think of.


3. Can't improved on  spiritrider's answer


4. Can't improved on  spiritrider's answer


5. Probably.

[Clueless]

Thank you so much @Spiritrider and @Jofoxcpacfp so much for you time and answers, very much appreciated.

@Spiritrider when you mention "If you were just a sole proprietor and you filed for multiple related businesses on the same Schedule C, you could contribute from all the income to the 401k. However, the IRS does not generally allow you to use the same Schedule C from different unrelated businesses."

Am I too short sighted to think that as a physician I will have all related business?  Potential private practice, consultation for pharma, possible health related products, but all medicine related or is there some way to find out how this would be categorized?  I guess, if I were ever to purchase real estate and rent out, that could qualify as an unrelated business that I could put under my LLC and still contribute to i401k, is this the correct way to think about it, which would support going for the LLC?

Thanks so much.