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Creating an LLC to shelter income from higher tax brackets

Hey guys, my wife and I are respiratory therapists. Last year, together, we made just shy of 100k. In April we took travel contracts to work in NYC during the peak of the Covid outbreak and have grossed almost that already in 8 weeks. We plan on continuing the contract work from now on, which won’t quite pay the same, but still much more than we are used to. People have told me to look into creating an LLC to help shelter some of our money from being taxed at a higher rate. I’ve started a YouTube channel to document our endeavors while staying in manhattan and I thought maybe I could turn my channel into my business. I am far from a financial guru, so I am hoping someone around here can help guide me on where to go from here. Thanks in advance!

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10 replies on “Creating an LLC to shelter income from higher tax brackets”

Creating an LLC won’t allow you to save money on your locums work because the hospitals will insist on paying you as an individual rather than paying an LLC.

If your Youtube channel is making lots of money, it’s possible to save a bit by forming an LLC (due to the Qualified Business Income deduction).

But it sounds like your goal is to shelter your locums income from high taxes, in which case, sorry, but you’re shit out of luck.

Edit: I’m a CPA

LLC does NOT help you with taxes in general; basically the LLC income is your income and taxed accordingly (it’s called discarded entity for a reason)… usually people use it for liability protection as it shelters the rest of your income… i mean it’s complicated question and depends on your income/assets etc, but i would check with a CPA…

Ask your CPA or accountant about opting to tax yourself as a corporation. A lot of accountants aren’t familiar with this, but ones that have a lot of high net worth clients will be.

Back in somewhere around 1967 the federal government made it an option for individuals to opt to be taxed as a corporation instead of an individual.

You will probably have to ask a few accountants about it before you find someone familiar with how it works. It wasn’t until recently that it made any sense to ever do that.

You would want to do this because of the lower tax brackets corporations have.

Contact an accountant or tax preparer. There is a lot of wrong information in these replies.

It’s a common move if you’ve reached a certain income level as a sole proprietor.

In this case, all your income goes to your LLC, which would pay both of your salaries.
You’d pay income tax on your salaries, which you can set at a lower amount.

The LLC itself would pay corporate taxes on your services income + payroll tax for paying yourself + you’d incur some accounting costs.

Instead of paying taxes on 50k + 50k yourselves, you can push that 100k into your LLC, pay corporate tax over it, then pay yourself a salary of say, 20k (just an example amount).

What you’d need to calculate is whether this would be worth it after the additional taxes the LLC has to pay.

Not an expert on US business forms but this is the theory on paper.

I think with an llc it’s filled with your social under your personal income tax. If you want to pay less in taxes look into creating a corporation. Corporations have to file their own taxes. All your assets can be owned by the corporation.

With corporations you pay taxes after your deductions. So if it made 100k and 50k was used as a business expense then you pay taxes for the remaining 50k. And you can deduct almost everything as a business expense.

I don’t know how it works when getting a paycheck but do look into corporations.

I could be wrong but that’s what I got from the book rich dad poor dad.

The second “L” in “LLC is “liability”, not “taxes”.

The reason you set up an LLC instead of working as a straight contractor or sole proprietor is to limit your legal liability – something that could be significant in your line of work. If you are not shielded, you and your wife could be subject to unlimited financial exposure including your home, cars, all cash, or any other asset if there is a successful claim against you for any legal reason.

An LLC limits legal exposure to the the assets cash and equivalents – like AR – and hard assets like vehicles and equipment of the LLC only. The LLC, in turn “hires” you both. The tax advantage is that the LLC is not taxed as a “C” corp, but passes through the profits to you as the members of the LLC.

Again, this is a legal entity, not a tax entity. It is key you manage this well because, if you use LLC assets for personal use, or commingle the accounts and pay personal bills, you have “pierced the corporate veil” and lost the protections.

Do not do this based on Reddit advice – get a business lawyer and a CPA involved.

You would need an LLC with an S-Corp treatment. But there is little benefit based on the information you have shared. If you are traveling doctors then certainly you could deduct a portion of your expenses if you run it through your LLC but you can’t hide money in an LLC or S-Corp. C-Corp leads to double taxation. Why don’t you instead start a travel doctor placement company and rake in money and worry less about taxes.

Depending on how you are paid for the travel contracts, you can track all of your expenses in order to participate and deduct from your income. You’ll need to figure out which expenses are usable, and you don’t need an LLC to deduct expenses against 1099 income.

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