I recently set up an LLC for a small consulting and training gig I’ve been doing. So far, I’ve only had one client this year, but I’ve got another lined up in December.
For context, my work is mostly short-term consulting (1-2 days, 6-18 hours) at about $100 an hour. My first project earned me $1200, and I expect to take on 3-4 projects a year. It’s a nice side income for me, but I’m not sure how to handle the taxes.
I know I’ll have to pay self-employment taxes. My business expenses are pretty minimal—just some legal fees from setting up the LLC and maybe mileage. Most of the clients I work with are local.
I have a full-time teaching job, and my spouse and I usually file jointly using TurboTax. We live in Pennsylvania if that matters. Any advice is appreciated!
As the sole member of a single-member LLC, it’s treated as a disregarded entity for federal taxes. You’ll report your income and expenses on a Schedule C with your personal tax return. An LLC is a state-level thing, not something the IRS treats separately unless you’ve elected a different tax status.
Don’t jump into making it an S-corp without talking to a CPA or EA. That can be complicated and costly. Not sure about Pennsylvania’s filing requirements, but some states (like California) have annual fees and extra paperwork for LLCs.
@Gray
If it were a husband-and-wife LLC, it would need a partnership return unless it qualifies as a Qualified Joint Venture in a community property state.
Grey said: @Gray
If it were a husband-and-wife LLC, it would need a partnership return unless it qualifies as a Qualified Joint Venture in a community property state.
True, but QJV only applies in community property states.
@Adair
Correct. A husband-and-wife LLC can’t elect to file as a QJV unless they live in a community property state. Otherwise, it defaults to being a partnership. Here’s more info: IRS link.
Grey said: @Gray
If it were a husband-and-wife LLC, it would need a partnership return unless it qualifies as a Qualified Joint Venture in a community property state.
It would only default to a partnership if the election was made. Sounds like OP is a single-member LLC.
@Gray
The part about a husband-and-wife LLC defaulting to a disregarded entity isn’t correct unless they’re in a community property state. Otherwise, it’s a partnership by default.
@Gray
As a tax attorney, I’ll say that while some lawyers are tax pros, the person forming your LLC might not be one. It’s always good to double-check.
Ellis said: @Gray
As a tax attorney, I’ll say that while some lawyers are tax pros, the person forming your LLC might not be one. It’s always good to double-check.
Agreed. I see clients all the time who set up partnerships or corporations without consulting their tax advisor first. It can cause a lot of headaches down the line.
Fraser said: @Gray
The LLC is just me, and I don’t think Pennsylvania has annual LLC fees. The lawyer who helped me set it up didn’t mention any.
I’m a tax pro in PA—there’s no annual LLC fee, but you’ll need to file a business privilege tax (mercantile tax) and possibly a business occupation income form. Let me know if you have more questions.
@Gray
You’re right that it has similarities, but for clarity, most people use the term pass-through for entities like partnerships and S Corps, not disregarded entities.
Forget the LLC for tax purposes—it’s ignored by the IRS. Report everything on Schedule C. Keep track of all income and expenses for your consulting work, even if it started before forming the LLC. Schedule C is for reporting your business activity, not the entity itself.