# Pros and Cons to setting up LLC



## NoDay (Jul 25, 2017)

The more I undergo these contracting jobs, the more I wonder if I should setup an LLC. 

Here are some facts: My day job is full time with gross before bonus >$40k by myself. Wife also makes about $30k in her day job. 

Contracting for multiple companies (part time only): 
Uber/Lyft/Instacart/Grub Hub 
Also for 'field mortgage inspector' - not started yet but thinking about it. 

I contract mainly during the summer at about 10 hours a week, but may take on more with the inspector contracts. I am unsure if I should pursue a LLC to help financially with taxes to separate from the main job. In addition to possibly setting up some protection in event of law suit. I see the contracting as a business and would like to protect my personal assets. 

What are your thoughts on this. I feel really ignorant on this topic.


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## UberTaxPro (Oct 3, 2014)

NoDay said:


> The more I undergo these contracting jobs, the more I wonder if I should setup an LLC.
> 
> Here are some facts: My day job is full time with gross before bonus >$40k by myself. Wife also makes about $30k in her day job.
> 
> ...


From what you've said so far it there would be 0 tax benefits at this point in forming an LLC (taxed as a sub s). Forming an LLC (taxed as a sub s) can save self employment taxes but you don't have enough S/E income to make it worthwhile yet. Also, there are extra expenses involved if you go the LLC route. From a financial viewpoint you can still separate your personal and business matters by using dedicated bank accounts.

With 0 tax benefits and extra costs involved the question you need to answer is will the liability protection of an LLC be worth the extra expense? And, are there any other ways to protect liability for less expense like extra insurance etc...


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## NoDay (Jul 25, 2017)

Is there a threshold where it would be beneficial? Anything after 20k etc?


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## UberTaxPro (Oct 3, 2014)

NoDay said:


> Is there a threshold where it would be beneficial? Anything after 20k etc?


The law requires that LLC's (taxed as sub s) pay the owner a *"reasonable salary"* before paying the rest out in business profits. I would say for most business it's usually over $50,000 of S/E income before it's reasonable to start thinking about it as a tax savings method. Here's how it would typically work:
A business owner has $100,000 net business income from his business. He determines that $60,000 is a "reasonable" salary for his duties operating the store. He forms an LLC or Sub s corp and pays himself a salary of $60,000. The additional 40,000 is paid to him as profit/ dividend. S/E tax wise here is what happens:
On the $60,000 he will pay full S/E tax 15.3 % =$9180
On the 40,000 he won't have to pay any S/E tax...*saving $6120*  (15.3% of 40,000)
In this situation it might make sense to spend the money to go the LLC route.

The reasonable salary is a very gray area but IRS has provided general guidelines that are industry specific.


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## NoDay (Jul 25, 2017)

Very good info. Thank you.


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## Ridester_Staff (Aug 25, 2017)

UberTaxPro said:


> From what you've said so far it there would be 0 tax benefits at this point in forming an LLC (taxed as a sub s). Forming an LLC (taxed as a sub s) can save self employment taxes but you don't have enough S/E income to make it worthwhile yet. Also, there are extra expenses involved if you go the LLC route. From a financial viewpoint you can still separate your personal and business matters by using dedicated bank accounts.
> 
> With 0 tax benefits and extra costs involved the question you need to answer is will the liability protection of an LLC be worth the extra expense? And, are there any other ways to protect liability for less expense like extra insurance etc...


I personally think that an LLC is totally worth the expense, if you drive a lot.

Having an umbrella policy will help from a liability standpoint, but an LLC does an even better job of completely separating the driver from their personal assets. Just think... if you got in a wreck, the passenger could technically come after you and your personal assets. I think the LLC is worth every penny, just knowing that I could sleep better at night without the risk


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