Do I need a LLC to Do Consulting Work

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WolfgangPauli
Posts: 164
Joined: Sun Aug 23, 2015 8:28 am

Do I need a LLC to Do Consulting Work

Post by WolfgangPauli » Tue May 16, 2017 4:31 pm

I am abou to exit "corporate" America and do some limited consulting / contractor work. Can anyone provide advice on:

  • Should I establish a LLC to do this?
  • Should I have business insurance to protect personal assets?
  • What can I do with this that is advantageous (SEP IRA, etc. etc?

Any other thoughts would be helpful.

thanks
Twitter: @JAXbogleheads | EM: JAXbogleheads@gmail.com

Gropes & Ray
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Re: Do I need a LLC to Do Consulting Work

Post by Gropes & Ray » Tue May 16, 2017 5:20 pm

An LLC helps shield your personal assets from business liability. So if you breach a business contract, only your business assets can be touched. This is not an absolute rule. You have to run your LLC properly and do business through your LLC. You also are not protected from professional liability for your own negligent acts, if that applies to your profession (doctors and lawyers are prime examples). For that you need professional liability (or E&O) insurance.

Considering how cheap and easy an LLC is to run, you may as well do it.

WolfgangPauli
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Re: Do I need a LLC to Do Consulting Work

Post by WolfgangPauli » Tue May 16, 2017 5:34 pm

Gropes & Ray wrote:An LLC helps shield your personal assets from business liability. So if you breach a business contract, only your business assets can be touched. This is not an absolute rule. You have to run your LLC properly and do business through your LLC. You also are not protected from professional liability for your own negligent acts, if that applies to your profession (doctors and lawyers are prime examples). For that you need professional liability (or E&O) insurance.

Considering how cheap and easy an LLC is to run, you may as well do it.


thank you and as I do more research I guess there are a few more questions:

  • Should I set up a S Corp to avoid certain full payroll taxes?
  • What is a "fictious name" in Florida? It appears you have a business name but then you creat a d/b/a with any name assigned to it (the fictitous name)?
  • Anything else you think I should do (you sold me on LLC)?
  • Can i just use legalzoom or is it a lot more complicated?

Thanks again!
Twitter: @JAXbogleheads | EM: JAXbogleheads@gmail.com

Gropes & Ray
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Re: Do I need a LLC to Do Consulting Work

Post by Gropes & Ray » Tue May 16, 2017 6:01 pm

I don't know the full ramifications of electing to be an S Corp in Florida. You need to know how Florida treats S Corp elections to know if it is a good idea. Frankly, I will defer to my clients' accountants on those questions. You can file as an LLC and later elect to be taxed as an S Corp.

I don't know Florida's fictitious name statute, but if it is like other states, then you're just registering another name for your company. So you might officially be Sears Roebuck & Co., but you want to just be known as Sears, so you register a fictitious name.

livesoft
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Re: Do I need a LLC to Do Consulting Work

Post by livesoft » Tue May 16, 2017 6:19 pm

I've done a little bit of consulting for the past 35 years. I've never had a LLC, S Corp, nor business insurance, nor employees, nor inventory, nor business property, nor ....
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Artful Dodger
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Re: Do I need a LLC to Do Consulting Work

Post by Artful Dodger » Tue May 16, 2017 7:10 pm

I would talk to an accountant, and run by them your expected income.

As noted above, the LLC provides some protection from business credtitors coming after personal assets. If however, your consulting / advice causes some identifiable damage to your client, you may still be personally liable unless you purchase some type of business liablity protection or errors and omissions type coverage.

I expect most part time consultants are sole proprietors, and their business income (less business expenses) is taxed as regular personal income subject to self-employment taxes. In an LLC, the income is taxed similarly, also subject to self employment tax.

If you set up an S-Corp, you can pay yourself a salary, reducing your potential social security (as opposed to self-employment) tax, and then take the profits as regular business income subject to your state's corporate tax, and your federal and state personal income tax. Depending on your states' corporate taxes, the S-Corp can be more expensive tax wise, unless you pay yourself a low salary, electing to take most income as a distribution. This brings up a potential audit risk, should the IRS challenge your distribution as disguised salary and comes back with retroactive social security charges, penalties, interest.

Here's a handy rundown, courtesy of a google search...

https://blog.freelancersunion.org/2014/ ... ss-entity/

Artful Dodger
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Re: Do I need a LLC to Do Consulting Work

Post by Artful Dodger » Tue May 16, 2017 7:46 pm

SEP-IRA would be the simplest for retirement plan.

namekevaste
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Re: Do I need a LLC to Do Consulting Work

Post by namekevaste » Tue May 16, 2017 7:48 pm

In terms of tax advantaged savings, you can also investigate solo 401(k) accounts. Many brokerages, including Vanguard and Fidelity allow solo 401(k) accounts. One potential advantage is when you max out your annual 401 or 403 allowance through another employer, you can still contribute the "employer" portion to your Solo 401(k). If you are doing an annual backdoor Roth conversion of a post-tax IRA, it can simplify things to not have a SEP IRA. There are calculators that allow you to calculate how much you can contribute as "employer" - https://docs.zoho.com/sheet/published.do?rid=hd3vb2c79aa2e630443d58a05e8140934898a. Recommend reviewing with your accountant.

WildBill
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Location: San Antonio, Texas

Re: Do I need a LLC to Do Consulting Work

Post by WildBill » Tue May 16, 2017 8:36 pm

livesoft wrote:I've done a little bit of consulting for the past 35 years. I've never had a LLC, S Corp, nor business insurance, nor employees, nor inventory, nor business property, nor ....


Yep. In many cases any structure is redundant.

You do, however, need to file a Schedule C with income and expenses. This is really the only critical requirement.

An LLC is useful if you want to limit liability. Chapter S corporation may also be useful depending on circumstances. They usually will be more trouble than it is worth if your model is consulting services for a fee.

I set up an LLC in Texas so I could put Wildbill's Consulting LLC on my business card and webpage, - also because in Texas it only costs $50 and takes about 5 minutes on line to do it. Might not have bothered otherwise.

Happy consulting.

W B
"Through chances various, through all vicissitudes, we make our way." Virgil, The Aeneid

CFM300
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Re: Do I need a LLC to Do Consulting Work

Post by CFM300 » Tue May 16, 2017 8:53 pm

WolfgangPauli wrote:Should I establish a LLC to do this?

Not necessarily. The protections may be modest or non-existent.

"There is one extremely significant exception to the limited liability provided by LLCs. This exception exists in all states. If you form an LLC, you will remain personally liable for any wrongdoing you commit during the course of your LLC business."

Source: http://www.nolo.com/legal-encyclopedia/ ... guide.html

WolfgangPauli wrote:Should I have business insurance to protect personal assets?

Almost certainly. Check into coverage for "errors and omissions." Also, If you have a personal umbrella policy, the company providing that might require that you also have business insurance. Check with them, and your homeowner's insurance company as well.

WolfgangPauli wrote:What can I do with this that is advantageous (SEP IRA, etc. etc?

Solo 401(k). Read this: http://www.obliviousinvestor.com/sep-vs ... solo-401k/

WolfgangPauli wrote:Any other thoughts would be helpful.


Read these short books, both by Mike Piper (aka Oblivious Investor):

LLC vs. S-Corp vs. C-Corp: Explained in 100 Pages or Less

Independent Contractor, Sole Proprietor, and LLC Taxes Explained in 100 Pages or Less

avalpert
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Re: Do I need a LLC to Do Consulting Work

Post by avalpert » Tue May 16, 2017 11:14 pm

WolfgangPauli wrote:I am abou to exit "corporate" America and do some limited consulting / contractor work. Can anyone provide advice on:

  • Should I establish a LLC to do this?
  • Should I have business insurance to protect personal assets?
  • What can I do with this that is advantageous (SEP IRA, etc. etc?

Any other thoughts would be helpful.

thanks

In what field are you doing the consulting? For most situations I doubt the LLC will be of any value to you. You should get business insurance, depending on the clients they may require it. If you won't be hiring any employees you should look at a Solo 401k.

J295
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Re: Do I need a LLC to Do Consulting Work

Post by J295 » Wed May 17, 2017 8:24 am

We don't know the nature of your consulting so it's challenging in the abstract to say whether or not an LLC might be helpful.

Communicate with your insurance agent on coverages, including making sure your vehicle use continues to be covered if you are using it for business driving.

On the financial side, consider a solo 401k, and and HSA (if you will be paying your own health insurance premiums with a high deductible plan).

WolfgangPauli
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Re: Do I need a LLC to Do Consulting Work

Post by WolfgangPauli » Wed May 17, 2017 12:17 pm

Wow.. .such great information.. thank you so much for what has been provided. Let me give some more information and perhaps we can get more specific.

  • I have made significant income from "corporate America" this year (Roughly $300K) and will be exiting shortly.
  • I plan on consulting in business process / supply chain / logistics.
  • I have one already "on the books" which starts shortly. I fully expect this will continue.
  • I have already come close to maxing out my company 401(k) for this year (can I still do the other or do I have to wait for next year?
  • I have already maxed out my SS contribution this year.

Any other assistance or advice would be greatly appreciated. Now off to some pretty deep reading from Oblivious investor!

Thanks for everyone's continued help.

WP
Twitter: @JAXbogleheads | EM: JAXbogleheads@gmail.com

rooms222
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Re: Do I need a LLC to Do Consulting Work

Post by rooms222 » Wed May 17, 2017 12:21 pm

A couple of additional notes:

In some industries, the companies only want to contract with an LLC or Corporation for consulting services to ease the risks on their end. This was the case for a friend of mine that did consulting for several years.

In some states, there are fees and/or publication requirements that make the LLC cost $800/year or so. California and New York spring to mind as being relatively expensive compared to most states.

avalpert
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Re: Do I need a LLC to Do Consulting Work

Post by avalpert » Wed May 17, 2017 1:48 pm

WolfgangPauli wrote:Wow.. .such great information.. thank you so much for what has been provided. Let me give some more information and perhaps we can get more specific.

  • I have made significant income from "corporate America" this year (Roughly $300K) and will be exiting shortly.
  • I plan on consulting in business process / supply chain / logistics.
  • I have one already "on the books" which starts shortly. I fully expect this will continue.
  • I have already come close to maxing out my company 401(k) for this year (can I still do the other or do I have to wait for next year?
  • I have already maxed out my SS contribution this year.

Any other assistance or advice would be greatly appreciated. Now off to some pretty deep reading from Oblivious investor!

Thanks for everyone's continued help.

WP


An LLC is unlikely to be helpful to you if all you are doing is consulting on operations/process.

You can do a Solo 401k, you will be able to contribute 20% of your net income adjusted for deductible payroll tax as an employer contribution, up to $54k, even if you maxed out your employee contribution in your other account. Obviously, given your tax bracket this will reduce your tax bill quite a bit.

MP123
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Re: Do I need a LLC to Do Consulting Work

Post by MP123 » Wed May 17, 2017 2:01 pm

rooms222 wrote:In some industries, the companies only want to contract with an LLC or Corporation for consulting services to ease the risks on their end. This was the case for a friend of mine that did consulting for several years.


That has been my experience too.

Organizing as a Corp or LLC will make things much easier when you're dealing with your clients AP department, Legal, and so on. If you're doing business as an individual on a sched C bigger companies wont take you seriously or may be concerned that you'll be reclassified as an employee. They also aren't required to send you a 1099 when you're doing business as a corporation.

LeeInTN
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Re: Do I need a LLC to Do Consulting Work

Post by LeeInTN » Thu May 18, 2017 4:33 pm

Depending on the type of consulting/contracting work you'll be doing, don't rule out the possibility of working through an agency which would actually own the legal relationship with your client. That's how I do it, and the agency pays me via W-2, and I avoid SET and liability. They carve out enough for Workers Comp and SS (no benefits though), so I end up with about the same net as if I contracted directly.

Spirit Rider
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Re: Do I need a LLC to Do Consulting Work

Post by Spirit Rider » Thu May 18, 2017 5:51 pm

MP123 wrote:
rooms222 wrote:In some industries, the companies only want to contract with an LLC or Corporation for consulting services to ease the risks on their end. This was the case for a friend of mine that did consulting for several years.

That has been my experience too.

Organizing as a Corp or LLC will make things much easier when you're dealing with your clients AP department, Legal, and so on. If you're doing business as an individual on a sched C bigger companies wont take you seriously or may be concerned that you'll be reclassified as an employee. They also aren't required to send you a 1099 when you're doing business as a corporation.

An LLC is a state chartered business entity. It is not a corporation unless you elect to be treated under sub chapter S. Otherwise you are still self-employed, LLC or not.

If a company has concerns about independent contractor vs. employee compliance, an LLC in and of itself will accomplish nothing. Your entries on Form W-9 will indicate this and they will still have to pay you on a 1099.

LLCs are one of the most oversold and unnecessary steps a new professional services business can take. There are very few circumstances where a consultant really benefits from an LLC that a good contract review by a lawyer and business/professional liability insurance can't accomplish much better.

Don't get me started on why many times an S-Corp or LLC/S-Corp are also unneeded and can be counter-productive.

danaht
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Re: Do I need a LLC to Do Consulting Work

Post by danaht » Thu May 18, 2017 7:33 pm

One of the biggest reasons to form a LLC (or corporation) is because some clients will require it to do business. A lot of companies require this because it's safer for them to do corp to corp billing rather than issue a 1099. Companies are doing this because of the new/existing policies (and law cases) that question when a contractor is really an employee or contractor. If your client(s) do not require it - then there might be little benefit to do it.

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Earl Lemongrab
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Re: Do I need a LLC to Do Consulting Work

Post by Earl Lemongrab » Fri May 19, 2017 1:13 pm

LeeInTN wrote:Depending on the type of consulting/contracting work you'll be doing, don't rule out the possibility of working through an agency which would actually own the legal relationship with your client. That's how I do it, and the agency pays me via W-2, and I avoid SET and liability. They carve out enough for Workers Comp and SS (no benefits though), so I end up with about the same net as if I contracted directly.

Does this company provide a 401(k)? I don't think you could do a solo with W-2 income.
This week's fortune cookie: "The stock market may be your ticket to success." I sure hope so!

WolfgangPauli
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Re: Do I need a LLC to Do Consulting Work

Post by WolfgangPauli » Sun May 21, 2017 6:14 am

LeeInTN wrote:Depending on the type of consulting/contracting work you'll be doing, don't rule out the possibility of working through an agency which would actually own the legal relationship with your client. That's how I do it, and the agency pays me via W-2, and I avoid SET and liability. They carve out enough for Workers Comp and SS (no benefits though), so I end up with about the same net as if I contracted directly.


I have thought about this but I am certain I can get more than enough clients for me to stay busy so why share any of the returns?
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