Should an unemployed academic (former w-2) is planning to return to university 1099 AND do side consulting create an LLC?

[LubaGee94]

Single member LLC

[tagteam]

Which state and what are you trying to accomplish?

In some states (at least one state, Florida), a single-member LLC does not provide much protection from personal liability while in others the registration and/or (state) annual fees are rather high.

[Critter-3]

Ok ... the LLC is only a state designation and has nothing to do with a federal tax return UNLESS you choose to incorporate and before you do that you need to get educated on what your state requires and the fees that may be applied.  If this "business" will not become a full time permanent situation then getting an LLC if one is not required and/or incorporating is like buying a big rig truck when a bicycle will do. 

Seek local professional guidance and/or do some eductating on this matter yourself. 

https://www.irsvideos.gov/Business/SBTW

https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc

https://www.irs.gov/businesses/small-businesses-self-employed/llc-filing-as-a-corporation-or-partner...

[Mike9241]

I would say talk to a lawyer in your state.  in some states LLCs don't offer much protection but have high annual fees. so you might be better off with an S-Corp. but then you have to take a salary and have workman's compensation insurance so there are tradeoffs and the S-corp may also have to pay annual fees and in some states is subject to income taxes. 

[tagteam · Accepted solution]

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@Mike9241 wrote:

I would say talk to a lawyer in your state....

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No. I would not say to "talk to a lawyer" in this instance. Rather, I would suggest speaking with similarly situated colleagues.

Lawyers are almost always going to default to "organize and establish an entity".

[Opus 17]

For federal income tax purposes, a single member LLC is a disregarded entity, just like a sole proprietorship, so the income taxes are the same either way.   If you file a special form for the LLC to be treated as an S-corporation, the tax rules are very different.  There are plenty of good books about this.  

The function of an LLC is not tax protection, but liability protection, and that varies from state to state. 

[LubaGee94]

State of Florida First to keep the IRS happy and separate any W-2 income from Consulting 1099 work.  launching a website and probably need a LLC for liability coverage for other firms associated with my website.  And separate personal from business.  

[LubaGee94]

All my work is related and not a "hobby" side gig. Used to be simpler. The SS# was the tax ID. With website exposure so comes liability issues. Now its more complex.  thank you for the heads up.

[LubaGee94]

This is most true.  Lawyerly friends are help.  this is not ever going to be a major enterprise, just an organized one.

[tagteam]

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@LubaGee94 wrote:

State of Florida....

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A Florida single-member LLC offers little to no personal liability protection.

[LubaGee94]

Perhaps the nature of the consulting business is simply caveat emptor.  Based on what I know you know and you decide how you use that information.  free will.

[LubaGee94]

Kudos to Turbo Tax people.  I have received the most thoughtful and professional help from the advisors on board during tax time. This clarifies my thinking. 

[Opus 17 · Accepted solution]

@LubaGee94 

If you just want to keep your finances separate, you can obtain a federal tax number  (EIN) to use in your business  without having to form an LLC or any other particular structure.  It’s free online at the IRS website and only takes a few minutes.

[LubaGee94]

Sound right.  That sounds like the good advice I got 40 years ago.  😊

[Opus 17]

@LubaGee94 

FYI because I forgot to mention, even if you obtain an EIN for the business, you will still report your business activities on a schedule C attached to your regular personal tax return.

Also FYI, if you obtain an EIN as sole proprietor and later decide to change your business to an LLC, you need a new EIN every time you change your business structure.