Hello all,
So in addition to my 9-5 job I also do consulting on the side to gain extra income, it is a sole prop that goes into a separate personal checking with the savings utilized as a tax account. I make a decent amount of income and have built up quite a bit of money since this is not "living money". I am thinking about establishing an LLC for the consulting income as well as using that income to invest. Would there be any benefit for establishing an LLC for the consulting/investment income?
Thanks!
The LLC would be beneficial to separate personal versus business assets and liabilities.
You probably want the LLC to limit your personal liability in the case where something goes wrong with your consulting gig.
I wrote a lengthy response that got erased somehow.
-Yes, LLC's can invest in SEP IRAs and Self-Directed IRAs(pretax).
Generally if you start an LLC there is a benefit to being taxed as a s-corp. And if I were you, I would have another partner in the company, mother/father/wife, who owns like .5%. This would have your income reported on your tax return in schedule K, which means you are a business and they won't look as closely at your deductions for business expenses as a sole prop. Also, you can take the income and bifurcate it as distributions and salary. How this is beneficial is that you don't have to pay self employment taxes on the distributions, but you would on the salary.
If you make over 100k, then I'd also look into a c-corp. Where you are taxed at 21%, however you are able to make promissory notes to yourself for tax free income.
Thank you very much for the response! The idea was having my wife as a 15% owner on the company. Also, was the 100k figure total income or just in the consulting/investment gig?
why that large of a percentage? She just needs to be 1%.
Also, if you do that then you can expense dinners together and vacations as "company events". All pre-tax dollars! Your vacations just got 30% cheaper.
The 100k figure was consulting income, and the hurdle for electing taxation as an s-corp.
On the last piece - how does that not draw any red flags? It strikes me that would be something they look for.
IRS allows deductions for company events. You and your wife work for the company.
This is the stuff that will get caught as a sole-prop that would not be again, as your consulting income with a 2+member LLC will be reported on the schedule K-1 of your income tax. Income and expense reported here are more corporate.
Essentially it is this small 100k profit LLC is going to get looked at compared to 1mm profit company?
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