I'm a senior resident a year from graduation. Currently, I am moonlighting and earning about $10K/yr from this job for which I receive a 1099-misc.

For tax purposes, I consider myself a sole-proprietor and deduct as much as allowed against this income.

I have two questions regarding becoming an LLC now:

(1) Would being an LLC lower my tax burden from my current moonlighting income while still a resident?

(2) After graduation, if I were to work for a hospital or practice as an independent contractor, would it be better from a tax and liablity point of view to be an LLC or an S-Corporation?

Thank you in advance for your advice.

Zip Code: aimd@dr.com

A single member LLC generally reports income and self-employment taxes just like a sole proprietor does, so there is no tax advantage to becoming an LLC. Also, unless you register your LLC yourself, it can be fairly expensive to become an LLC - attorneys charge about $1,000 in Ohio.

You could elect to incorporate your LLC, and then make the election to be an S Corp, but this would involve even more of expense, and your corporation would have to file a separate set of tax returns, which would add more cost.

I'm not an attorney, but it has always been my understanding that an LLC will protect you from general business liability, but in a medical practice it will not offer you any protection from malpractice. Also, because you will probably be required to sign personally for many transactions, it may only offer you a small amount of real protection from general liabilities.

There is no perfect "one size fits all" type of entity to practice in, and what fits you best now may change over time. Given the amount of your moonlighting income, I don't know that I would bother with an LLC or incorporation now.

You should talk to a CPA and your attorney before you decide what is best for you. You'll hear horror stories about sole proprietorships, LLC's, C Corps and about S Corps and they're all true!

Zip Code: garyd@davisandbrandel.com