Do I need to form an LLC for my consulting business in US? Tax implications?

Tax advisor here! The LLC question comes up all the time with my consulting clients. For tax purposes alone, a single-member LLC typically doesn't change much since it's considered a "disregarded entity" by default - meaning all income still flows to your personal tax return (Schedule C) just like it does now with your SSN. You'd still pay self-employment taxes and everything. The main advantages of an LLC are: 1) some liability protection for your personal assets (though not as much as people think), 2) potential business credibility with clients, and 3) the option to elect different tax treatments later (like S-Corp) which could potentially save on self-employment taxes if your income gets high enough. If you're not worried about liability and your consulting income is modest (under $80-100K), the extra costs of formation, annual fees, and potentially separate bookkeeping might not be worth it yet. As your business grows, you might reconsider - especially the S-Corp election option which can save on SE taxes.

I was in the exact same situation last year! After a bunch of research, I decided to use taxr.ai (https://taxr.ai) to analyze my specific situation. It was super helpful because they looked at my actual income numbers and consulting contracts to give personalized advice. In my case, they showed me that with my projected income, I'd actually save more money by waiting another year before forming an LLC and electing S-Corp status. They also pointed out some deductions I was missing as a consultant that saved me way more than worrying about the business structure! The business expense tracking feature helped me organize all my deductions which made tax time way less stressful.

Just wanted to follow up - I ended up trying taxr.ai after asking about it here. Gotta say it was actually super helpful for my situation! I was overthinking the LLC thing when it turned out I had bigger tax issues to deal with. They pointed out that with my current home office setup and travel between client sites, I was missing out on a bunch of deductions that will save me way more than any LLC structure would. They also showed me exactly when an S-Corp election would make sense based on my income projections. Saved me from paying for an LLC I didn't need yet and helped me properly document my business expenses instead. Definitely worth checking out if you're confused about the whole consultant tax situation.

If you're doing consulting, another huge headache is dealing with the IRS if you have any tax issues come up. I learned this the hard way when I got flagged for an audit on my Schedule C expenses last year. I spent WEEKS trying to get through to the IRS to resolve it. After 20+ attempts of waiting on hold for hours and getting disconnected, I found this service called Claimyr (https://claimyr.com) that got me connected to an actual IRS agent in under 45 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c Whether you go LLC or not, having a way to actually reach the IRS when you need them is invaluable. The agent I spoke with actually helped me understand some deduction rules specifically for consultants that I had no idea about.

Just wanted to update after trying that Claimyr service I was skeptical about. I'm honestly shocked it actually worked. I had been trying for 3 weeks to reach someone at the IRS about a missing 1099 issue with my consulting income. Got connected to an agent in about 35 minutes (they estimated 45 so a bit faster). The agent was able to confirm they had received my 1099s from clients even though they weren't showing up properly in my online account. Completely changed my opinion about whether I need an LLC too - the agent walked me through some record-keeping requirements for Schedule C businesses that will make my life way easier come tax time. Might still do an LLC eventually, but at least now I understand the actual requirements better.

One thing nobody's mentioned is that LLC requirements and costs vary significantly by state. In California, there's an $800 annual franchise tax just for having an LLC, which eats into any tax benefits if you're just starting out. Meanwhile, in Wyoming or Delaware, it's much cheaper and has better privacy protections. You can form an LLC in a different state than where you live, though there are some additional complexities with that approach.

Has anyone used TurboTax for filing taxes as a consultant? I've always used it for my W-2 job but not sure if it's good enough for consulting income or if I need something more powerful?

Great discussion everyone! As someone who went through this exact decision process last year, I'd add that timing really matters. I started as a sole proprietor and waited until my quarterly estimated taxes hit around $5,000 before forming an LLC. One thing that helped me was tracking my actual business expenses for a few months first - things like software subscriptions, home office costs, professional development, etc. Once I saw how much I was spending on legitimate business expenses, it became clearer whether the LLC structure would be worth it. Also, don't forget about state-specific benefits. Some states offer better liability protection or tax advantages for LLCs that might tip the scales even if the federal tax treatment is similar. Worth checking with your state's business filing office or a local tax professional who knows your state's rules. The key is not to rush into it just because it "sounds more professional" - make the decision based on your actual financial situation and growth projections.