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Moonlighting - start an LLC or Corporation?

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  • Moonlighting - start an LLC or Corporation?

    I am working full time and am full partner in my current group, but am considering picking up a side gig (radiology). The company i'm looking into hires radiologists as independent contractors through a 1099. I'm considering starting my own LLC or corp as a means to be more tax efficient and would ideally set up (and probably put all that I make in the side gig) into my own 401k or SEP IRA etc. Any recommendations on LLC vs S corp or any other corp? From what i've read seems like LLC is probably the way to go.

  • #2
    Neither probably. Just be a sole proprietor. No to SEP IRA, do the 401k.

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    • #3
      Sole proprietorship to start is more cost effective with fewer documentation requirements. Consider an LLC as the business grows (when you don't want to mingle personal risk with business risk usually once the "business" is on pace to amass assets) and then an S corp if/when your CPA recommends, usually with higher annual revenues for tax purposes.

      Some pro's and cons of an LLC from Legalzoom:

      LLCs Compared to General Partnerships and Sole Proprietorships | legalzoom.com

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      • #4
        How do you think an LLC or Corp will make you more tax efficient? Sole proprietor is likely the right answer but I get it, it isn’t as cool to say you’re a sole proprietor as opposed to an LLC or Corp.

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        • #5
          1) unlikely to be more tax efficient via either avenue. In fact likely cost / tax inefficient, with no benefit
          2) unlikely to be able to put all you make in side gig into a qualified plan. Most likely, only a minority of the income
          3) understand that this side gig income will be taxed at your highest marginal rate. Do you know your marginal rate? It’s a good chance to analyze how much you value the extra income against your most precious asset: time

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          • #6
            Simply having a single-member LLC like you are considering would change nothing about your tax treatment. A single-member LLC is a disregarded entity which means that it doesn't exist for tax purposes.

            Most people who form an entity (corp or LLC) intend for it to be taxed as an S-Corporation. Since you're already over the FICA cap, using an S-corporation (either an LLC taxed as an S-corporation or a corporation where you've made an S-election) wouldn't save you taxes, it would cause you to pay more.

            There's no tax reason to have one. Depending on your state, you may actually have to pay an annual tax just to have an LLC (CA charges an $800/year minimum).

            Your lawyer might say there's a legal reason to form an LLC but there's no tax reason to do so.

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            • #7
              Ok, for some reason I thought by starting an LLC or corp i'd be able to redirect the funds into a 401k and cut taxes that way. Can I still start my own 401k as a sole proprietor?

              I'm at the far end of marginal tax bracket so I won't be making a lot of $ on it. I'm doing this mostly as a way to get started on my own so that I have something to retire into when I leave my current group (my partners like to work way more than me and i'm on the verge of FI). This moonlighting gig doesn't require immediate turnaround so I'm hoping to move into a career of reading more complex and enjoyable studies when I want to instead of having to work fixed shifts with tremendous volume requiring fast/near immediate turnaround.

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              • #8
                Originally posted by lucas View Post
                Can I still start my own 401k as a sole proprietor?
                Yes.

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                • #9
                  Originally posted by lucas View Post
                  Ok, for some reason I thought by starting an LLC or corp i'd be able to redirect the funds into a 401k and cut taxes that way.
                  An LLC is a disregarded entity for tax purposes. It defaults to a sole proprietor/partnership, but the llc can elect to be taxed as s or c corp. It's mainly for asset protection of the owner, but a physician side hustle doesn't really have liability risk except for malpractice, which an llc won't help with. No real differences with 401k. Sole proprietor may even be better if you're maxing out employee contributions emerges.

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                  • #10
                    Pay particular attention to DavidGlennCPA's 2nd paragraph.

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