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    11 Replies Latest reply on May 27, 2010 2:02 AM by jessicanz

    Science Consultant so confused with SP, LLC, S-Corp, etc.

    NitDawg Newbie
      I have been working part-time (bascially in my free time) as a consultant for biomedical research companies. I charge $150 - $200/h for my work. I have not formed any sort or legal business structure. I've read countless posts, heard from friends and collegues, etc. and thinking maybe I should talk to a CPA. At first look, there seems to be two issues. The first is liability. I consult/advise/research/plan and come up with ideas for other people. I don't know why I would start taking out loans, etc. that would potentially put my personal assets at risk. I also don't meet personally with clients at my house etc. So I'm not sure from a liability perpsecive if I really need some sort of asset protection. The second is the tax side of things. I understand the self-employment taxes that need to be paid. And as a sole prop or LLC I would be paying taxes on 100% of what I make. I think I also understand that I could form an S-corp or choose to have my LLC be taxed as a corporation, and by doing so I may save on the self-employment tax. However, this would only apply to my total profit minus what my reasonable salary would be, and the $150 rate is pretty on par, so there's not much to be saved unless I can lower my salary and all of this would have to counter-balance the costs of setting up and maintaining the LLC/S-corp etc. Does all of this sound about right, or am I really missing the ball here. I may receive success bonuses from time to time ($5000 per bonus) and something like that could fall out of what would be considered salary and maybe there is some tax savings in there.

      Also, I just started this business this year but plan on sending in estimated tax payments anyways. I wasn't sure if you get a pass on tax payment penalties your first year or not, so I just figured I should send in that money to avoid penalties.

      Any input is greatly apprecitated!!

        • Re: Science Consultant so confused with SP, LLC, S-Corp, etc.



          One area of liability you didn't mention is if a customer feels wronged and damaged by your consulting/advice/research/planning and goes after you. The liability extends beyond loans and insurance for people being on your property.


          What if a customer sues your customer and names you in the suit or your customer sues you in return because they believe or can show that your involvement was at the root of the problem?


          Hope this helps.


          Doug Dolan


          The Solopreneur's Guide


          • Re: Science Consultant so confused with SP, LLC, S-Corp, etc.
            YesYouCan Scout
            Science Consultant,

            Here are a few sources of information that will be helpful. Check them out, and then with the information you have gained consult with three people - A SCORE volunteer Small Business Counselor - An Accountant - A local Business Insurance Agent.

            Here's the information sources:

            Business Structure and Taxes; Internal Revenue Service ( click on "Businesses" - "Starting A Business"- under "What New Business Owners Need To Know", click "Starting A Business Structure". And also check out "Additional Resources" at the bottom of each section. This website is slanted towards taxes but over-all is very good information.

            Business Insurance (aka Commercial Insurance); Insurance Information Institute ( click on "Insuring your business; Small business Owners Guide to Insurance". Pay special attention to Errors and Ommissions insurance for your business.

            SCORE ( an affiliate of the Small Bsuiness Administration that provides FREE counselling to Small Business Owners) can be reached by going to and followint to a local chapter.

            Good luck on your business.
            • Re: Science Consultant so confused with SP, LLC, S-Corp, etc.
              Bridge Navigator
              O.K., let's talk liability. You say that your contracts "takes care of that." Based on your posts, you don't seem inclned to hire outside experts. Did an attorney write or at least review your contract?

              Second, regardless of what your contract states, you can be sued. The courts are in place to determine if you are liable or not, not your contract. The contract may offer you a defense in court that may or may not be accpeted.

              So, no you are in court and you lose. What happens? Did your personally provide services and your personal assets are at risk or did your company provide services and your company's assets (probably minimal) are at risk?

              Best of luck.
                • Re: Science Consultant so confused with SP, LLC, S-Corp, etc.
                  NitDawg Newbie
                  Yes, Bridge, I did have an attorney prepare my consulting service contract. I think it comes down to risk assessment as well. I analyze data, provide a second opinion, help brainstorm etc. For what I do, I would have to come up with quite an elaborate situation where my personal assets would be at risk. I provide my opinion for the most part. If you chose to pursue 1 of the 3 options I suggest and it doesn't work, I am not financially responsible for that decision, I do not offer any guarantee of service in this regard, and I do not think that is unreasonable. Its science, and only 10% of what you try even works anyway :) Thanks for your input!
                    • Re: Science Consultant so confused with SP, LLC, S-Corp, etc.
                      Bridge Navigator
                      You are totaly missing the point.

                      1) People can sue regardless of what the contract says and you will have to defend.
                      2) With the protection of a corporate entity, persoanl assets are at risk.
                      3) You are putting yourself out as a professional and hence your opinion becomes "expert advice".

                      Best of luck.
                        • Re: Science Consultant so confused with SP, LLC, S-Corp, etc.
                          NitDawg Newbie
                          Thanks again. I had a friend with an LLC and his personal assets were still targeted -- nothing says a lawsuit can`t be against your company AND you personally. I'm sure there is some level of personal asset protection with LLCs, but with my friend's experience and other examples I've read online, I can personally be sued as well. So I think there is some misconceptions out there about LLCs being this knight in shining armour, however they still must hold up well since they seem to be popular. I'm thinking there are 2 main issues here, the first being financial liability of the if I can't make rent on my office space my personal assets could be shielded from this. As far as negligence or fraud, I don't see how the LLC protects you personally since I could just as easily be named on a lawsuit in addition to the company. Again, this is why business insurance seems to be a good idea as well. So LLC, CPA, lawyer fees, business insurance for creative thinking? No thanks. I do appreciate you insight!
                    • Re: Science Consultant so confused with SP, LLC, S-Corp, etc.
                      TAXTERMINATOR Newbie
                      WOW ........ I am guessing you are doing research....... I will let the liability issue rest....

                      If you are a Sole Proprietor - You report you income on Schedule C. Yes, you would pay self employment tax in lieu of FICA and Medicare The SE tax rate is 15.3%.

                      If you become a SINGLE MEMBER LLC, (just you, no wife, no partner) you can elect to report your income on your schedule C or you can elect to be treated as a corporation and make an S election if you choose.

                      If you are an S-Corp, you need to take a "reasonable" salary for the work you perform. The company deducts, you have W-2 income, you pay 1/2 the fica and medicare and your company pays the other 1/2. the total is still 15.3%. If you don't take everything out as salary, you report the remaining income on schedule E and there is no SE tax so you save a little there.

                      But- it's all you really so ...... it all gets taxed at your individual rate.

                      C-Corp - The tax rates are graduated
                      {noformat} $ 0 $ 50,000 15%{noformat}{noformat} 50,000 75,000 25%{noformat}{noformat} 75,000 100,000 34%{noformat}{noformat} 100,000 335,000 39%{noformat}{noformat} 335,000 10,000,000 34%{noformat}{noformat} 10,000,000 15,000,000 35%{noformat}{noformat} 15,000,000 18,333,333 38%{noformat}{noformat} 18,333,333 .......... 35%

                      You can sometimes save this way. The FICA and medicare are all the same. Anything not taken in salary stays in the company.

                      But this is probably not a good choice for you as you can be deemed a personal service corp I think. They pay a flat rate of 35% YOu would need to take everything out in salary in that case.


                      YOu can use the the company corporation to incorporate, just google them. Not expense, they will file you elections for you, cyour corporate agent blah balh.. all that stuff. very easy.

                      Good luck!{noformat}
                      • Re: Science Consultant so confused with SP, LLC, S-Corp, etc.
                        jessicanz Wayfarer
                        As TaxTerminator put it, is expensive you going it alone as you will be deemed a personal service corporation. The best is to form a corporation for you is S Corp as there is no doulble taxation

                        A corporation that has elected to be taxed under Subchapter S of the
                        Internal Revenue Code of 1954. The "double taxation" of a C Corporation
                        is not present. The taxable income of an S corporation is not subject
                        to income tax at the corporate level, but is allocated directly to the
                        shareholders to be taxed at that level. This is also known as "pass
                        through taxation". An S corporation is similar, but not identical, to
                        partnership taxation.

                        I bet you will save more this way comparatively.
                        • Re: Science Consultant so confused with SP, LLC, S-Corp, etc.
                          jessicanz Wayfarer
                          I forgot to post this when I replied to your question. Check out this Consulting Company. May be they can assist in all your queries about formation and business incorporation.