Physician Independent contractor - LLC vs S corp vs other

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Gemini
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Physician Independent contractor - LLC vs S corp vs other

Post by Gemini » Mon Jan 12, 2015 1:16 pm

I am considering some independent contract work outside of my current employment. Basically, this type of work will consist of chart reviews, utilization reviews and similar stuff.

I currently get payed as an employee. For my new work, I will be an independent contractor and get paid via W9. Would it make sense for me to form a LLC and get payments made to the LLC for this new type of work? What are the disadvantages or advantages of making a LLC in this situation?

Thanks.
Last edited by Gemini on Thu Jan 15, 2015 11:17 pm, edited 2 times in total.

CFM300
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Re: Independent contractor and LLC

Post by CFM300 » Mon Jan 12, 2015 1:26 pm

Since you won't have employees, you might find that there's no advantage to creating an LLC. Regardless, you might want to consider professional liability insurance. Errors and omissions. And possibly a data liability policy depending on the sensitivity of electronic files that you handle. E.g., what if you make a mistake in your one of your reviews that causes your company or an individual in the company some sort of loss? What if your laptop with company files gets stolen or hacked?

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vitaflo
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Re: Independent contractor and LLC

Post by vitaflo » Mon Jan 12, 2015 2:50 pm

Gemini wrote:I am considering some independent contract work outside of my current employment. Basically, this type of work will consist of chart reviews, utilization reviews and similar stuff.

I currently get payed as an employee. For my new work, I will be an independent contractor and get paid via W9. Would it make sense for me to form a LLC and get payments made to the LLC for this new type of work? What are the disadvantages or advantages of making a LLC in this situation?

Thanks.
The only disadvantage I see is the couple bucks it costs to set up the LLC. After that it's all advantages.

Limited Liability is something you certainly want if you're on your own. You don't want people to be able to go after your house if you're sued. Also, in my experience, many large companies will not do business with sole proprietors. As such you have to at least have an LLC if you even want to discuss any contract work with them.

Given how easy they are to set up now, I see no reason not to if you're taking in any W9 income.

Zecht
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Re: Independent contractor and LLC

Post by Zecht » Mon Jan 12, 2015 3:55 pm

If you decide to do an LLC Partnership with your spouse (if you have one), you can dramatically lower your tax bill by setting up your spouse as a limited partner, meaning that rather than paying SE and income tax on all money earned, only your half would be hit with SE tax while hers would not (you both must still pay income tax). You could go with any person for your partnership, but various programs and laws in various states change with regard to partnerships depending on whether or not you are married.

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Gemini
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Re: Independent contractor and LLC

Post by Gemini » Mon Jan 12, 2015 4:50 pm

Thanks for all the replies.

Not married yet, but soon. Can I add my spouse in later? Isn't there some minimum customary that the spouse must be paid?

Also, what is the best to go about setting up LLC?

Zecht
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Re: Independent contractor and LLC

Post by Zecht » Mon Jan 12, 2015 6:28 pm

I would first suggest that you consult a CPA and a lawyer (in that order) to talk about the costs to setup and run, and exactly what kind of business entity is best to use for your individual circumstance.

For the spouse, typically you want to be married prior to making the LLC partnership, but in some cases you can make it before, it just involves more risk than if you were married. Typically, the spouse owns 50% of the partnership with you holding the other half. Depending on how you are advised to setup your LLC, you usually have a salary/regular wage you pay yourself (business money to pay you a regular wage), and a "distribution" which accounts for profits in excess of your wage. In this simple partnership setup, the partner performing the work (you) would be paid a reasonable wage, take a reasonable distribution, and pay (as a distribution) money to the limited partner (the spouse). Tax rules, franchise fees, and other annual penalties may apply and you also may base your business in a state that is not your home state, so consult carefully with your CPA/lawyer.

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Gemini
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Re: Independent contractor and LLC

Post by Gemini » Mon Jan 12, 2015 8:10 pm

Zecht wrote:I would first suggest that you consult a CPA and a lawyer (in that order) to talk about the costs to setup and run, and exactly what kind of business entity is best to use for your individual circumstance.

For the spouse, typically you want to be married prior to making the LLC partnership, but in some cases you can make it before, it just involves more risk than if you were married. Typically, the spouse owns 50% of the partnership with you holding the other half. Depending on how you are advised to setup your LLC, you usually have a salary/regular wage you pay yourself (business money to pay you a regular wage), and a "distribution" which accounts for profits in excess of your wage. In this simple partnership setup, the partner performing the work (you) would be paid a reasonable wage, take a reasonable distribution, and pay (as a distribution) money to the limited partner (the spouse). Tax rules, franchise fees, and other annual penalties may apply and you also may base your business in a state that is not your home state, so consult carefully with your CPA/lawyer.
You think I really need a CPA and a lawyer?

I am doing this for supplemental income and if I have to spend money upfront for a CPA AND a lawyer AND LLC, then I am not sure if it makes sense to go this route.

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Re: Independent contractor and LLC

Post by notmyhand » Mon Jan 12, 2015 9:03 pm

It would help if you tell us what state you are working in.

However, (a big disadvantage in my opinion), make sure you take a look at the tax filing requirements for single member LLCs in your state. Some states, such as Pennsylvania, have many more forms required for tax returns for an LLC, even one taxed as a sole proprietorship, than the federal return does and they are somewhat tedious and have poor instructions. If the liability is small, it might be something to look at.

CFM300
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Re: Independent contractor and LLC

Post by CFM300 » Mon Jan 12, 2015 9:13 pm

vitaflo wrote:Limited Liability is something you certainly want if you're on your own. You don't want people to be able to go after your house if you're sued.
Be careful. Using an LLC does not make you immune from all forms of liability. You'll likely need professional insurance as well. And you might find that professional insurance is all that you need.

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Re: Independent contractor and LLC

Post by PaddyMac » Mon Jan 12, 2015 9:42 pm

Unless you need "LLC" on your business card to impress the clients, or you think you might get sued, if you are just earning a bit on the side from some white-collar work I think it would be fine to be a sole proprietor. With any Schedule C income, you could then open a SEP-IRA and save about 20% of your profit.

You can always get a DBA (doing business as) with a city business license which will mean you could open a bank account for your business income if need be (again, not necessary for some occasional moonlighting).

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Gemini
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Re: Independent contractor and LLC

Post by Gemini » Mon Jan 12, 2015 10:23 pm

base state will likely be NJ or NYC or PA or CT, but can't one base the LLC in any state he/she chooses?

As far as how much will come in from this - it MAY have the potential to generate 6 figures. But, that is a big MAY.

I spoke to a friend of mine who does similar work and his LLC is a sole proprietor. He set up on legal zoom and registered with sec of states office. He generates low 6 figures annually.

thanks for all the input everyone.

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Gemini
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Re: Independent contractor and LLC

Post by Gemini » Tue Jan 13, 2015 11:08 am

http://www.myllc.com/which-state-to-form-llc.aspx

Interesting article I came upon. Not sure if I qualify to have my LLC out of state...

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Re: Independent contractor and LLC

Post by vitaflo » Wed Jan 14, 2015 12:05 pm

Gemini wrote: You think I really need a CPA and a lawyer?
You don't. You can get one set up via the IRS and your State's Sec of State websites usually. Cost depends on the state but if it's more than $300 total I'd be surprised. When I did it the total was $150, and I could set all of it up online.

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Gemini
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Re: Independent contractor and LLC

Post by Gemini » Wed Jan 14, 2015 3:14 pm

thanks vitaflo. setting up is easy - the question is whether I should do LLC or S corp or C corp or nothing at all.


i was thinking sole proprietor LLC and then, depending on what I earn, put money in a SEP IRA at the end of the year. i am not sure how much $ this will generate so not sure how much i can put it sep ira.


i spoke to a friend and he recommended it might be better to set your 1099 business up as a C-corp because it may allow for other deductions that an S-corp will not allow (ie medical reimbursement accounts, achievement awards, etc).

any thoughts or input?

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vitaflo
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Re: Independent contractor and LLC

Post by vitaflo » Wed Jan 14, 2015 6:14 pm

Gemini wrote:thanks vitaflo. setting up is easy - the question is whether I should do LLC or S corp or C corp or nothing at all.

i was thinking sole proprietor LLC and then, depending on what I earn, put money in a SEP IRA at the end of the year. i am not sure how much $ this will generate so not sure how much i can put it sep ira.

i spoke to a friend and he recommended it might be better to set your 1099 business up as a C-corp because it may allow for other deductions that an S-corp will not allow (ie medical reimbursement accounts, achievement awards, etc).

any thoughts or input?
The corp thing (S or C) is in my opinion a needless endeavor that will just waste more of your time, both yours and your accountant (which means paying your accountant more of your $$). The money you may save I feel is nominal, but the paperwork, etc is a lot more. In my opinion, unless you consistently have 1099 income over $200k every year, it's not worth the hassle. LLC taxed as a sole prop is so much easier. You don't need to worry about W2's, payroll, stock, K1's, unemployment, etc.

Definitely get a retirement account set up for the biz. SEP or Solo 401k. Fidelity has a quick and easy calculator to use for SEP:

https://www.fidelity.com/retirement-ira ... ss/sep-ira

You will want to max out whatever you can on that, especially since the contribution limits are much higher than an a typical 401k.

For what it's worth, my biz is LLC taxed as Sole Prop, with a SEP-IRA. I am also co-owner of an S-Corp, so I've seen both sides of it.

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Gemini
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Re: Independent contractor and LLC

Post by Gemini » Wed Jan 14, 2015 11:03 pm

I hear ya. More and more I read - it makes more sense for me to go with LLC.

Re LLC - can I base it any state or must it be where I reside or where I work? Most of my 1099 work will be done on a computer so I can technically do it from anywhere

Re sep ira or solo 401 - what is the deadline to open these? Deadline to contribute to these? I'm guessing one wouldn't really know how much they can put in until the year has ended on Dec 31. Also, do contributions to these affect contributions to my traditional 401k via my 9-5 w2 gig?

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vitaflo
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Re: Independent contractor and LLC

Post by vitaflo » Wed Jan 14, 2015 11:20 pm

Gemini wrote: Re LLC - can I base it any state or must it be where I reside or where I work? Most of my 1099 work will be done on a computer so I can technically do it from anywhere

Re sep ira or solo 401 - what is the deadline to open these? Deadline to contribute to these? I'm guessing one wouldn't really know how much they can put in until the year has ended on Dec 31. Also, do contributions to these affect contributions to my traditional 401k via my 9-5 w2 gig?
Can't comment on out of state LLC's. To me the entire point of a sole prop LLC is to simplify things so you can worry more about billing clients than doing accounting, so going with some weird setup like that seems antithetical to that notion.

Contributions to those retirement accounts can be made up till tax day the following year. Thus you can apply contributions in March 2015 to the 2014 tax year. Vanguard even has this option when you contribute, you get to pick what year it should apply to. This helps with not knowing how much you can put in until year end.

That doesn't mean you can't contribute before end of year. I usually contribute 15% or so to my SEP and then end of year have my accountant figure out how much extra I can contribute. Around Feb of the following year I then contribute that amount, apply it to the previous year, and then use the new total on my taxes.

As far as how it affects a traditional 401k, I do not know, as I do not have one.

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Re: Independent contractor and LLC

Post by White Coat Investor » Wed Jan 14, 2015 11:43 pm

Gemini wrote:I am considering some independent contract work outside of my current employment. Basically, this type of work will consist of chart reviews, utilization reviews and similar stuff.

I currently get payed as an employee. For my new work, I will be an independent contractor and get paid via W9. Would it make sense for me to form a LLC and get payments made to the LLC for this new type of work? What are the disadvantages or advantages of making a LLC in this situation?

Thanks.
First, you don't get paid via a W-9. You give them a W-9, and they pay you on a 1099.

Second, LLCs and sole proprietorships basically have the same tax treatment. Forming an LLC doesn't save you any taxes unless you elect to have it taxed as an S Corp, in which case all you save are payroll taxes, probably just Medicare tax for most docs.

Third, chart review/utilization review work is pretty low risk. There is probably little benefit to the asset protection benefits of an LLC, especially a single member LLC.

So no, it probably doesn't make sense to form an LLC. However, it's not like it costs much. Mine cost me $70 to establish and $15 a year to renew. If you want an LLC, get an LLC.

What does make sense is getting an EIN and opening an individual 401(k) for that income.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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Re: Independent contractor and LLC

Post by White Coat Investor » Wed Jan 14, 2015 11:45 pm

PaddyMac wrote:Unless you need "LLC" on your business card to impress the clients, or you think you might get sued, if you are just earning a bit on the side from some white-collar work I think it would be fine to be a sole proprietor. With any Schedule C income, you could then open a SEP-IRA and save about 20% of your profit.
Please don't advise any more doctors to open SEP-IRAs. Prior to 2010, that was pretty good advice. But now with the existence of backdoor Roth IRAs, it's bad advice due to the pro-rata rule. High earners should preferentially use an individual 401(k).
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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Gemini
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Re: Independent contractor and LLC

Post by Gemini » Thu Jan 15, 2015 9:35 am

thanks for all the input and clarification everyone

emergdoc i read your article http://whitecoatinvestor.com/sep-ira-vs-solo-401k/ and that was a reason i was thinking of sep ira.

i did my first backdoor roth conversion for 2014 a few months and will be doing it again for 2015 with vanguard very soon.

can you explain your reasoning for solo 401k > sep ira for docs? i already have a 401k from my traditional employment position that pays me via w2. would opening my solo 401K have an impact on my employee 401K?

is there really any reason for me to consider S corp or C corp?

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Gemini
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Re: Independent contractor and LLC

Post by Gemini » Thu Jan 15, 2015 11:03 pm

bumping for more input.

i was reading some more and came across this posted by someone on here "In most cases an S-corp would be disadvantageous for a moonlighting job for a high income individual. ...you have the problem of double paying social security taxes. Presumably you earn close to the maximum ceiling for social security, currently $113,700, in your day job. If you moonlight through an S-corp, you then have to pay yourself a salary on your moonlighting income and the S-corp must pay additional social security taxes on this extra income. While you personally get a refund for overpayment on your half of FICA, the S-corp doesn't get a refund of its half. That means your S-corp could be paying an extra, useless 6.2% tax on your $40,000 side job. You can avoid this 6.2% double social security tax by using a sole proprietorship"

it seems like a single owner LLC filed as a sole proprietor would be best.

i had another question : which state do i file this in? i work in one state and live in another. since i will be doing mostly online work, can i pick either (cheaper) state as a base for LLC?

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Re: Physician Independent contractor - LLC vs S corp vs othe

Post by niceguy7376 » Fri Jan 16, 2015 12:54 pm

If you have SEP IRA, you cannot do backdoor roth for full amount since SEP IRA is counted along with trad ira accounts.

As for which state to file your LLC, if you are working from home on your computer for this moonlighting job, then you need to file where your home is based. this is because you are working in that state to earn that income.

Also, if you are contributing the max of 17.5K or 18K to a 401k at your main job, you cannot contribute as an employee to another 401k. You can only do employer contribution.

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Gemini
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Re: Physician Independent contractor - LLC vs S corp vs othe

Post by Gemini » Fri Jan 16, 2015 1:33 pm

niceguy7376 wrote:If you have SEP IRA, you cannot do backdoor roth for full amount since SEP IRA is counted along with trad ira accounts.

As for which state to file your LLC, if you are working from home on your computer for this moonlighting job, then you need to file where your home is based. this is because you are working in that state to earn that income.

Also, if you are contributing the max of 17.5K or 18K to a 401k at your main job, you cannot contribute as an employee to another 401k. You can only do employer contribution.



So, am I my own employer within a sole proprietor LLC?

If I max out the 18K 401K at my W2 gig, can I still contribute the 20% that I generate from the LLC into a solo 401K that I open for the 1099 business?

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Re: Physician Independent contractor - LLC vs S corp vs othe

Post by niceguy7376 » Fri Jan 16, 2015 1:37 pm

I am no expert on LLC / Sole Prop .

I have my own S-Corp and Solo 401k and only one job.

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Re: Independent contractor and LLC

Post by Spirit Rider » Fri Jan 16, 2015 1:57 pm

Gemini wrote:i had another question : which state do i file this in? i work in one state and live in another. since i will be doing mostly online work, can i pick either (cheaper) state as a base for LLC?
Generally, if you file in a state you do not work in you need to have a registered agent. Now if you have physical access to that state and access to a mailing address, that may suffice.

However, you will be creating a business entity in that state. The IRS may treat that business entity as a disregarded entity, but that state may not. So I would be very sure you understand not only the LLC registration issues, but any tax issues that may be involved for that particular state.

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Re: Physician Independent contractor - LLC vs S corp vs othe

Post by Spirit Rider » Fri Jan 16, 2015 1:58 pm

Gemini wrote:So, am I my own employer within a sole proprietor LLC?

If I max out the 18K 401K at my W2 gig, can I still contribute the 20% that I generate from the LLC into a solo 401K that I open for the 1099 business?
Yes

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Gemini
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Re: Independent contractor and LLC

Post by Gemini » Fri Jan 16, 2015 2:14 pm

Spirit Rider wrote:
Gemini wrote:i had another question : which state do i file this in? i work in one state and live in another. since i will be doing mostly online work, can i pick either (cheaper) state as a base for LLC?
Generally, if you file in a state you do not work in you need to have a registered agent. Now if you have physical access to that state and access to a mailing address, that may suffice.

However, you will be creating a business entity in that state. The IRS may treat that business entity as a disregarded entity, but that state may not. So I would be very sure you understand not only the LLC registration issues, but any tax issues that may be involved for that particular state.
Most of my work will be on the computer. I am guessing that should suffice for basing it in a state where I live or no? How will the state where I work in know anything about this entity since I won't be physically doing anything in that state that is 1099 work related?

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Gemini
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Re: Physician Independent contractor - LLC vs S corp vs othe

Post by Gemini » Fri Jan 16, 2015 2:18 pm

Spirit Rider wrote:
Gemini wrote:So, am I my own employer within a sole proprietor LLC?

If I max out the 18K 401K at my W2 gig, can I still contribute the 20% that I generate from the LLC into a solo 401K that I open for the 1099 business?
Yes
Is the limit 53K?

If I put in 18K into my W2 401K, and my employer adds enough to make it 53K, can I still put 20% of my 1099 earnings in a solo 410K?

Also, how does this scenario affect my ability to do a back door roth?

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Re: Physician Independent contractor - LLC vs S corp vs othe

Post by Spirit Rider » Fri Jan 16, 2015 3:06 pm

Gemini wrote:
Spirit Rider wrote:
Gemini wrote:So, am I my own employer within a sole proprietor LLC?

If I max out the 18K 401K at my W2 gig, can I still contribute the 20% that I generate from the LLC into a solo 401K that I open for the 1099 business?
Yes
Is the limit 53K?

If I put in 18K into my W2 401K, and my employer adds enough to make it 53K, can I still put 20% of my 1099 earnings in a solo 410K?

Also, how does this scenario affect my ability to do a back door roth?
The employee salary deferral limit ($18K in 2014) is by each employee across all Simple IRA, 401K, 403b, but not 457 plans from all employers including yourself.

The total employee + employer annual additions ($53K in 2014) is by each employer (including control group) for Simple IRA, 401K, and 457 plans. There is a arcane exception that 403B plans are considered individual plans for annual addition aggregation.

So your W2 salary deferral of $18K prevents you from making any salary deferral in your Solo 401k plan, but your Solo 401k receives its own $53K annual addition limit. What this means is if you had sufficient revenue you could contribute $53K in profit sharing to your Solo 401k regardless of the contributions to your W2 401k. Only if your W2 plan was a 403b plan would you need to limit your Solo 401k annual additions to $53K - the W2 plan total contributions.

Any assets in 401K, 403B, or 457 plans whether at a past employer, current employer, or your own Solo 401k are not assets considered when determining any pro-rata conversions for traditional -> Roth IRA conversions. Only assets in Simple IRA, SEP IRA, and traditional IRA accounts are considered.

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Gemini
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Re: Physician Independent contractor - LLC vs S corp vs othe

Post by Gemini » Fri Jan 16, 2015 3:13 pm

A little confusing, but I will re-read what you wrote a few times and let it sink in.

I see you mentioned "simple IRA" - does this mean traditional IRA?

Can I still do my usual backdoor Roth with vanguard assuming I max out at 53K in employed 401K and 53K in my SOLO 401k?

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Re: Physician Independent contractor - LLC vs S corp vs othe

Post by Spirit Rider » Fri Jan 16, 2015 6:05 pm

Gemini wrote:A little confusing, but I will re-read what you wrote a few times and let it sink in.

I see you mentioned "simple IRA" - does this mean traditional IRA?

Can I still do my usual backdoor Roth with vanguard assuming I max out at 53K in employed 401K and 53K in my SOLO 401k?
The bottom line is that a W2 401k $18K salary deferral eliminates the ability to take a Solo 401k salary deferral, but all combined W2 401k employee/employer contributions do not affect your ability to take up to the full $53K as a profit sharing contribution in the Solo 401k.

No a Simple IRA is not a traditional IRA it is an Employer Plan that has a employee salary deferral component. It is just a situation where a W2 salary deferral would reduce the ability to take a salary deferral in a Solo 401k.

Yes, you could still do a backdoor Roth even if both of your total W2 401k and total Solo 401k contributions each maxed out at $53K.

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Re: Physician Independent contractor - LLC vs S corp vs othe

Post by Nomadix » Fri Jan 16, 2015 6:44 pm

This post may be helpful:

viewtopic.php?f=2&t=150076

I myself went with the Sole Proprietor route. Didn't seem to be any benefit to form an LLC in my situation, your seems similar. Like EmergDoc said though, it's a minimal cost, so there's no harm either really.

An S-Corp can save you medicare tax on dividends, but as someone (I assume) being paid an hourly wage, it may be hard convincing the IRS that though your company is paying you say $100/hr for your services, your S-corp has determined your work is actually worth less, say $50/hr, and the rest will be dividends. Otherwise, if there are no dividends there are no tax-savings, only incorporation costs. At least this was the reasoning I used when I was doing hourly independent contractor work.

Another useful post to check out:

http://whitecoatinvestor.com/incorporat ... ave-taxes/

I myself also went with a Solo 401k. As EmergDoc said, don't do an IRA as this will mess with your Backdoor Roth.

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Gemini
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Re: Physician Independent contractor - LLC vs S corp vs othe

Post by Gemini » Fri Jan 16, 2015 7:21 pm

Spirit Rider wrote:
Gemini wrote:A little confusing, but I will re-read what you wrote a few times and let it sink in.

I see you mentioned "simple IRA" - does this mean traditional IRA?

Can I still do my usual backdoor Roth with vanguard assuming I max out at 53K in employed 401K and 53K in my SOLO 401k?
The bottom line is that a W2 401k $18K salary deferral eliminates the ability to take a Solo 401k salary deferral, but all combined W2 401k employee/employer contributions do not affect your ability to take up to the full $53K as a profit sharing contribution in the Solo 401k.

No a Simple IRA is not a traditional IRA it is an Employer Plan that has a employee salary deferral component. It is just a situation where a W2 salary deferral would reduce the ability to take a salary deferral in a Solo 401k.

Yes, you could still do a backdoor Roth even if both of your total W2 401k and total Solo 401k contributions each maxed out at $53K.
Thanks for the clarification.

So I can potentially put away 53k in my employed 401k, 53k in my solo 401k via 1099 and continue my annual 5.5k backdoor Roth contributions via a traditinal IRA. Correct?


In regards to solo 401k - should I open one now or wait until the end of year? Fido or vanguard?

I am not certain how much income will be generated via 1099 so I am debating whether I should contribute per paycheck or wait until Dec 31 to calculate the contribution. Or does it not really matter about the timing?

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Re: Physician Independent contractor - LLC vs S corp vs othe

Post by Gemini » Fri Jan 16, 2015 7:27 pm

Nomadix wrote:This post may be helpful:

viewtopic.php?f=2&t=150076

I myself went with the Sole Proprietor route. Didn't seem to be any benefit to form an LLC in my situation, your seems similar. Like EmergDoc said though, it's a minimal cost, so there's no harm either really.

An S-Corp can save you medicare tax on dividends, but as someone (I assume) being paid an hourly wage, it may be hard convincing the IRS that though your company is paying you say $100/hr for your services, your S-corp has determined your work is actually worth less, say $50/hr, and the rest will be dividends. Otherwise, if there are no dividends there are no tax-savings, only incorporation costs. At least this was the reasoning I used when I was doing hourly independent contractor work.

Another useful post to check out:

http://whitecoatinvestor.com/incorporat ... ave-taxes/

I myself also went with a Solo 401k. As EmergDoc said, don't do an IRA as this will mess with your Backdoor Roth.
One of the reasons I want to create a sole proprietor LLC is so I can get an EIN/TIN and avoid giving out my SS on W9 forms.

So you just did solo and never made LLC or Corp?

staythecourse
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Re: Physician Independent contractor - LLC vs S corp vs othe

Post by staythecourse » Fri Jan 16, 2015 8:13 pm

I will give you a piece of advice that goes WELL beyond this discussion and is applicable to any aspect of your life when it comes to making decisions. When you have two options unless one is same or only slightly more advantageous OR you can't tell which is better then the other one pick the one that is simpler or cheaper or both.

That mindset has helped me MANY, MANY times in life. It always works. If you can't make a good, strong argument to favor one then call it a tie and pick the one that has less risk which is the one that is less costly or less complex.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

Spirit Rider
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Re: Physician Independent contractor - LLC vs S corp vs othe

Post by Spirit Rider » Fri Jan 16, 2015 9:25 pm

Gemini wrote:Thanks for the clarification.

So I can potentially put away 53k in my employed 401k, 53k in my solo 401k via 1099 and continue my annual 5.5k backdoor Roth contributions via a traditinal IRA. Correct?
Yes
Gemini wrote:In regards to solo 401k - should I open one now or wait until the end of year? Fido or vanguard?

I am not certain how much income will be generated via 1099 so I am debating whether I should contribute per paycheck or wait until Dec 31 to calculate the contribution. Or does it not really matter about the timing?
It doesn't matter if you open it now or later as long as you make the effective date 01/01/2015. If you do so you can make contributions from revenue earned after the effective date. However, if you open it now you don't have to worry about forgetting to open it by 12/31. There is no downside to opening it sooner rather than later.

The choice between Fidelity or Vanguard is really a personal decision based on your own priorities based on a few differences:

1. Vanguard has more choices for Index Funds than Fidelity, Although this gap has narrowed considerably in the last few years with Fido adding Mid-Cap, Small-Cap, Emerging Markets, TIPS, and REIT Index Funds.
2. Vanguard does not offer Admiral Shares in its Solo 401k. Fidelity does offer Advantage Class in its Solo 401k, so after you have sufficient assets, you can get the lowest expense ratios.
3. Vanguard offers Roth 401k sub accounts, Fidelity does not.
4. Fidelity accepts income rollovers from IRA accounts. Vanguard does not
5. Neither allows loans.

You can make profit sharing contributions at any time during the year up to your tax filing deadline (~= 04/15) including extensions (~= 10/15). This can either be any time on or after the revenue is earned or it can be pro-rated based on a reasonable estimate for the year's revenue.

Spirit Rider
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Re: Independent contractor and LLC

Post by Spirit Rider » Fri Jan 16, 2015 9:38 pm

Gemini wrote:
Spirit Rider wrote:
Gemini wrote:i had another question : which state do i file this in? i work in one state and live in another. since i will be doing mostly online work, can i pick either (cheaper) state as a base for LLC?
Generally, if you file in a state you do not work in you need to have a registered agent. Now if you have physical access to that state and access to a mailing address, that may suffice.

However, you will be creating a business entity in that state. The IRS may treat that business entity as a disregarded entity, but that state may not. So I would be very sure you understand not only the LLC registration issues, but any tax issues that may be involved for that particular state.
Most of my work will be on the computer. I am guessing that should suffice for basing it in a state where I live or no? How will the state where I work in know anything about this entity since I won't be physically doing anything in that state that is 1099 work related?
I just noticed this response.

You misunderstood my post above. I was talking about the problems you might experience by registering the LLC in a state you do not live in. I was just cautioning against doing a remote registration to save a few bucks in registration and annual fees without considering all the side effects. You should have no problem registering in the state you are a resident of.

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magellan
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Re: Physician Independent contractor - LLC vs S corp vs othe

Post by magellan » Fri Jan 16, 2015 10:45 pm

Gemini wrote:One of the reasons I want to create a sole proprietor LLC is so I can get an EIN/TIN and avoid giving out my SS on W9 forms.
I don't think you need to create an LLC to be able to do this. A sole proprietor can get an EIN/TIN and as you mention, this saves you from having to give out your SS.

In fact, if you create an LLC but plan to report its income on your Schedule C, using an LLC's EIN on W9s will result in the associated 1099s getting flagged by the IRS. When you file taxes for an LLC on your Schedule C, the LLC is considered a disregarded entity by the IRS. Since the LLC never files a tax return, any 1099s that get generated that have the LLC's EIN will get flagged by the IRS because the EIN won't match up to a filed tax return. So even in this case, you'll want to get an EIN that's mapped to your name and isn't mapped to the LLC name.

WL2034
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Re: Physician Independent contractor - LLC vs S corp vs othe

Post by WL2034 » Fri Jan 16, 2015 10:59 pm

Nomadix wrote:This post may be helpful:

viewtopic.php?f=2&t=150076

I myself went with the Sole Proprietor route. Didn't seem to be any benefit to form an LLC in my situation, your seems similar. Like EmergDoc said though, it's a minimal cost, so there's no harm either really.

An S-Corp can save you medicare tax on dividends, but as someone (I assume) being paid an hourly wage, it may be hard convincing the IRS that though your company is paying you say $100/hr for your services, your S-corp has determined your work is actually worth less, say $50/hr, and the rest will be dividends. Otherwise, if there are no dividends there are no tax-savings, only incorporation costs. At least this was the reasoning I used when I was doing hourly independent contractor work.

Another useful post to check out:

http://whitecoatinvestor.com/incorporat ... ave-taxes/

I myself also went with a Solo 401k. As EmergDoc said, don't do an IRA as this will mess with your Backdoor Roth.

I agree with all of this. Working full-time as a sole-proprietor physician. Do not see the benefit of having an LLC or S-Corp in this situation, for just these reasons. Also, regarding liability, I need medical malpractice insurance, but don't see the need for LLC because just like any physician, all my liability is attached to my activities as a medical provider. And I already have medical malpractice insurance as part of the job, so I think forming an LLC would just be redundant. Not sure if this is somehow different for you as a consultant not performing patient care or not.

I don't know any locums providers who have formed an S-Corp or LLC, but they may be out there. The biggest reason I didn't form an S-Corp is just as mentioned above, if the hospital is paying me $100/hr to provide services, how can I pay myself less out of my S-Corp and take the rest in dividends when really what they are paying me is the reasonable rate? I suppose you could try to pay yourself a lower rate (maybe 70-80%) and take dividends through the S-Corp, but I wouldn't feel comfortable with it and would worry about IRS audit. IMO, not worth the extra money.

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JonnyDVM
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Re: Physician Independent contractor - LLC vs S corp vs othe

Post by JonnyDVM » Fri Jan 16, 2015 11:51 pm

will34 wrote:
Nomadix wrote:This post may be helpful:

viewtopic.php?f=2&t=150076

I myself went with the Sole Proprietor route. Didn't seem to be any benefit to form an LLC in my situation, your seems similar. Like EmergDoc said though, it's a minimal cost, so there's no harm either really.

An S-Corp can save you medicare tax on dividends, but as someone (I assume) being paid an hourly wage, it may be hard convincing the IRS that though your company is paying you say $100/hr for your services, your S-corp has determined your work is actually worth less, say $50/hr, and the rest will be dividends. Otherwise, if there are no dividends there are no tax-savings, only incorporation costs. At least this was the reasoning I used when I was doing hourly independent contractor work.

Another useful post to check out:

http://whitecoatinvestor.com/incorporat ... ave-taxes/

I myself also went with a Solo 401k. As EmergDoc said, don't do an IRA as this will mess with your Backdoor Roth.

I agree with all of this. Working full-time as a sole-proprietor physician. Do not see the benefit of having an LLC or S-Corp in this situation, for just these reasons. Also, regarding liability, I need medical malpractice insurance, but don't see the need for LLC because just like any physician, all my liability is attached to my activities as a medical provider. And I already have medical malpractice insurance as part of the job, so I think forming an LLC would just be redundant. Not sure if this is somehow different for you as a consultant not performing patient care or not.

I don't know any locums providers who have formed an S-Corp or LLC, but they may be out there. The biggest reason I didn't form an S-Corp is just as mentioned above, if the hospital is paying me $100/hr to provide services, how can I pay myself less out of my S-Corp and take the rest in dividends when really what they are paying me is the reasonable rate? I suppose you could try to pay yourself a lower rate (maybe 70-80%) and take dividends through the S-Corp, but I wouldn't feel comfortable with it and would worry about IRS audit. IMO, not worth the extra money.
Unless you're making a substantial amount as an independent contractor (like roughly 350k a year) it's not going to be worth the hassle to set up an LLC and tax it as an s-corp. Also, at a certain point it pays to speak to a CPA that knows about this kind of stuff. It gets complicated. Based on what you've posted an LLC taxed as an S-corp is not going to help you out.
Sometimes the questions are complicated and the answers are simple. -Dr. Seuss

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Gemini
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Re: Physician Independent contractor - LLC vs S corp vs othe

Post by Gemini » Sat Jan 17, 2015 1:37 am

Thanks for all the info guys

So after more and more reading - definitely no S corp!

I am wondering whether it makes sense to even form a single member LLC. I don't see any advantages and it just involves more paperwork with fees.

Some questions about using the individual/sole proprietor box on a w9 :

1 can I still do a solo 401k?
2 how easy is it to get a TIN number for an individual?
3 once I obtain TIN. do I still have to fill out my SS# on the box provided on W9?

Also wondering if I should open up a separate "business checking" account for this 1099 work. I currently only have two bank accounts - one checking and one saving. Are there any advantages to open a biz checking?

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Re: Physician Independent contractor - LLC vs S corp vs othe

Post by Spirit Rider » Sat Jan 17, 2015 5:12 am

Gemini wrote:1 can I still do a solo 401k?
2 how easy is it to get a TIN number for an individual?
3 once I obtain TIN. do I still have to fill out my SS# on the box provided on W9?

Also wondering if I should open up a separate "business checking" account for this 1099 work. I currently only have two bank accounts - one checking and one saving. Are there any advantages to open a biz checking?
.
1 Yes, the business entity type has no bearing on this. As long as you are an Owner-Employee with no statutory employees.
2 Online thru the IRS website. Although thru a quirk only the government would have, the hours are limited to M-F 7am - 10pm.
3 Yes, The main reasons for obtaining an EIN even though you have no statutory employees is that you need it for the Solo 401k from most providers and to open business bank accounts,

As a minimum, I believe you should at least Do Business As (DBA) a business name instead of just your name if you are not using a LLC. If that is the case you will need a checking account in the DBA name to cash the checks. I have always found that having a separate business checking account and credit card makes it much easier to keep track of what are business and what are personal expenses.

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Gemini
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Re: Physician Independent contractor - LLC vs S corp vs othe

Post by Gemini » Sat Jan 17, 2015 11:53 am

Good call on the DBA spirit rider.

Once I obtain a DBA, do I use that dBA name instead of mine on the W9 form? I'm assuming the address would just be my home address.

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Re: Physician Independent contractor - LLC vs S corp vs othe

Post by Spirit Rider » Sat Jan 17, 2015 12:02 pm

Yes, the purpose of the W9 is to provide Payee information for payment, company records and IRS reporting if required. If you put your personal name on the W9, their accounting department would cut a check in your name

Nomadix
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Re: Physician Independent contractor - LLC vs S corp vs othe

Post by Nomadix » Sat Jan 17, 2015 5:15 pm

Spirit Rider wrote:
Gemini wrote:Thanks for the clarification.

So I can potentially put away 53k in my employed 401k, 53k in my solo 401k via 1099 and continue my annual 5.5k backdoor Roth contributions via a traditinal IRA. Correct?
Yes
Unless I am misunderstanding, this that this actually not true.
The total elective deferral limit from all plans is $18,000
For each plan, a total limit of $53,000 for elective deferral and profit-sharing combined.

http://www.irs.gov/Retirement-Plans/Pla ... ion-Limits

For my individual 401k I went with E-trade and am happy with them.

http://whitecoatinvestor.com/where-to-o ... solo-401k/

You can apply for an EIN here:

http://www.irs.gov/Businesses/Small-Bus ... %29-Online

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Re: Physician Independent contractor - LLC vs S corp vs othe

Post by Spirit Rider » Sat Jan 17, 2015 7:26 pm

Nomadix wrote:
Spirit Rider wrote:
Gemini wrote:Thanks for the clarification.

So I can potentially put away 53k in my employed 401k, 53k in my solo 401k via 1099 and continue my annual 5.5k backdoor Roth contributions via a traditinal IRA. Correct?
Yes
Unless I am misunderstanding, this that this actually not true.
The total elective deferral limit from all plans is $18,000
For each plan, a total limit of $53,000 for elective deferral and profit-sharing combined.
I don't think it is a misunderstanding, but a lack of context. Did you read the entire thread?

There is nothing inconsistent with Gemini's statement from above and your quote of employee elective deferral limits and each plan's total addition limits. What you didn't gather from earlier posts is Gemini was talking about W2 $18K elective deferral, $35K W2 profit sharing, $53K Solo 401k profit sharing, and $5.5K backdoor Roth.

Nomadix
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Re: Physician Independent contractor - LLC vs S corp vs othe

Post by Nomadix » Sat Jan 17, 2015 10:56 pm

Ah, didn't catch he had profit sharing option in W2 plan. Thanks for the clarification. :)
Always good to review as the contribution limits often tend to be a point of confusion.

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Gemini
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Re: Physician Independent contractor - LLC vs S corp vs othe

Post by Gemini » Tue Jan 20, 2015 12:33 pm

Had another question:

Opting for a single owner LLC essentially means the LLC is disregarded. Assuming one goes through the IRS website and follows the prompts and selects LLC - and then gets an EIN for a single member LLC.
What happens in this case with filling out a W9 and an EIN with a single member LLC? Do I have to provide my SS# on W9 or can I use the EIN?

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Re: Physician Independent contractor - LLC vs S corp vs othe

Post by niceguy7376 » Tue Jan 20, 2015 1:31 pm

Spirit Rider wrote:Gemini was talking about W2 $18K elective deferral, $35K W2 profit sharing, $53K Solo 401k profit sharing, and $5.5K backdoor Roth.
.

A bit more clarification to other posters.
The $53K profit sharing can only be achieved if Gemini has more than $200K Income on his sole proprietor company. Since he cannot do employee contributions and all the Solo 401k contributions are profit sharing, he can reach that limit only if the side business brings in more than 4 5 times the 53K Amount (Sole Prop is 5 times and S Corp is 4 times).
Last edited by niceguy7376 on Tue Jan 20, 2015 2:22 pm, edited 1 time in total.

pshonore
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Re: Physician Independent contractor - LLC vs S corp vs othe

Post by pshonore » Tue Jan 20, 2015 1:38 pm

I thought he was going as a sole prop which I think would be 5X the profit (4X would apply to S corp)

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