LLC?

BarbaraNP · Apr 30, 2011

If you are working as an independent contractor, you ARE your own business. As an IC, you must pay your own taxes and your own benefits. Some consider it a gray area if you are not organized as an LLC or PC as opposed to being a sole proprietor (the later does not provide you with any protection in terms of your assets).

As an LLC, you can elect "flow through taxation", which makes it somewhat similar to how you pay your taxes. In most cases, you are not paying more taxes, but will likely pay less taxes as you'll have several tax deductions you can take as a business owner (and yes, that does mean the IC).

I hope this makes sense. It's easier for me to talk about rather than write about.

BTW...if it looks like you might not be really be an IC, both you and the company that is using your service potentially could face fines with the IRS.

BarbaraNP

emtneel · Apr 30, 2011

Thanks. I am definitely an independent contractor. I get paid through management companies who get paid by the clinic or hospital I work at. I don't get any benefits, ie I pay my own health insurance, etc..

What Tax benefit would an LLC bring that I can't already take as an independent contractor? I can already deduct all my work expenses... Is there some other tax break that i'm not aware of?

Thanks

mschelee, MSN, RN · Sep 8, 2018

This is a good discussion. I'm getting ready to enter into a contract as a nurse practitioner that would make me an independent contractor. The company I'm working for would pay me and I would have a 1099, and be responsible for my own taxes my own Medicare etc. in Las Vegas we don't have state tax so I guess I'm lucky there... It was suggested that I also register as an LLC, it was presented as a way that I could lower my tax burden but I didn't really understand. The person that suggested this said I could have a certain amount of my income placed into my LLC and that would be pretax dollars; I'm not sure if this is true because the way I understand it you have to pay taxes on all of your income. So I also don't understand how an LLC is a benefit. You mentioned that it protects your assets, so I'm wondering if that means it protects my personal assets my home my car etc. if I were to get sued, does that mean some we can only sue the LLC but they couldn't sue me personally? I just am not sure how the LLC is really the benefit

Goldenfox · Sep 8, 2018

I just am not sure how the LLC is really the benefit

The most important benefits are that liability is shifted from you, personally, to the LLC. If you are sued, its the LLC that gets sued, not you personally. So, your personal assets are not exposed to risk as they would be if you were not operating as a LLC. Also, even if you are working in a state that doesn't collect income tax you are still liable for federal income tax. Operating as a LLC can lower your tax liability because under certain circumstances you are able to deduct more business-related expenses than you would be able to do otherwise. Someone above said that she is already able to deduct all of her business expenses. That may have been so in 2011 when this thread was originally started, but the tax laws have changed significantly since then, and there are now limits on what an individual who isn't incorporated may be able to deduct. Many companies that offer IC contracts don't bother explaining this, and unfortunately, many nurses who work as contractors don't ask.

If you are working as an IC you should definitely consider incorporating. It means doing a bit of paperwork and paying the fees to incorporate as a LLC but overall its worth the effort.

InquisitiveAPN · Sep 9, 2018

Both my account, and a friend who's a trust and estate (i.e. tax) attorney feel like the value of a LLC isn't great. You're still liable for any malpractice and almost anything but very specific, business-oriented liability like not paying phone bills and going to collections for Younts Nursing Care, LLC when it's owned by Sally Sue Younts.

pro-student · Sep 10, 2018

The advantages of an LLC are not tax savings but limited liability (hence the name - limited liability corporation). If your LLC is a sole proprietorship, which it would be unless you had a business partner, then you avoid the double-taxation corporations usually face by paying pass-through taxes. That means your taxable income is your business income minus any business expenses (and with the addition of any other sources of income such as investments). There might be some difference in your ability to deduct home office expenses but since you said you work out of a clinic, this amount is probably minimal.

The limited liability advantage means that only the business assets are at risk in the event of legal action. In your current arrangement, if you were sued and a settlement or judgement in excess of you malpractice coverage was awarded, a court would consider your personal assets (home, car, savings, investments) as sources of funds to pay the plaintiff. However, if you had an LLC, the individual would have to sue the LLC and only assets own by the LLC and not you personally could be considered for payment. You would need to maintain complete separation between your personal finances and the LLCs since something like paying your personal phone bill from the LLC account would void the liability protection (known as piercing the corporate veil). The downside is obviously the cost of setting up the LLC which will probably require an attorney to draft the legal documents and the state-required fees. Also, there is the added hassle of maintaining separate financial accounts.