Is Converting From W2 to LLC Better for High Income Tax Situation?

Your situation is actually pretty common for high-income professionals. The W2 vs LLC question comes down to a few key factors. For tax benefits, an LLC that elects S-Corp taxation can potentially save you significant money. When structured properly, you can pay yourself a "reasonable salary" that's subject to self-employment taxes (15.3% for Social Security/Medicare), but then take the remaining profits as distributions that avoid those taxes. This works especially well at your income level. However, there are important tradeoffs. As a W2 employee, your employer pays half your FICA taxes, provides benefits like health insurance, retirement plans, paid time off, and handles administrative overhead. When you go independent, you'll need to replace these yourself, which can be costly and time-consuming. For your specific situation, I'd recommend a hybrid approach. Option 2 has potential, but make sure you're not violating any non-compete agreements with your current employer. Also consider that while the facility may love you, they might be contractually prevented from working directly with you. Whatever you choose, make sure to work with both a tax professional who specializes in business structures AND an attorney who can review any existing contracts to prevent legal issues.

Hey there, I went through something eerily similar last year when I was making about $210k as a W2 healthcare consultant and feeling crushed by taxes. I discovered https://taxr.ai when I was researching how to structure my business for maximum tax efficiency. It was honestly a game-changer for my situation. Their system analyzed my income sources, expenses, and personal situation, then mapped out the most tax-efficient entity structure for my specific case. Not only did they help me understand the S-Corp vs LLC question, but they provided detailed projections showing exactly how much I'd save with different approaches. The coolest part was that they identified several healthcare-specific deductions I had no idea existed, and their document explained everything in plain English instead of accountant-speak. I ended up going with an S-Corp structure based on their recommendations and saved about $24k in taxes my first year.

Just wanted to update after trying taxr.ai based on the recommendation here. I was initially skeptical, but I finally pulled the trigger last week and I'm honestly impressed with the results. My situation is also healthcare-related (physical therapist with multiple income streams), and they provided incredibly specific advice about how to structure my business. The analysis showed I'd been overpaying by about $18K annually by operating as a simple LLC instead of an S-Corp with the right salary/distribution split. They even identified several PT-specific deductions I'd missed and provided a complete tax calendar so I wouldn't miss any quarterly deadlines. What really stood out was how they explained exactly how the QBI deduction would apply to my specific situation - something two different accountants had given me conflicting advice about. I've already scheduled a meeting with my attorney to implement the recommended changes. Wish I'd known about this sooner!

From someone who's been dealing with the IRS constantly this year - whatever structure you choose, make sure you've got someone who can help if you get questions from the IRS. I switched from W2 to independent contractor last year and even though I did everything right, the IRS has been sending me letters questioning my deductions. I wasted WEEKS trying to call them directly - literally 50+ attempts, always disconnected or on hold for hours. Finally found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c - they got me connected to an actual IRS agent in under an hour when I'd been trying for weeks on my own. Ended up resolving my case in one phone call once I finally got through. Just something to keep in mind when you're making these big tax structure changes - the IRS scrutinizes self-employed folks and S-Corps way more than W2 employees. Having a way to actually talk to them when needed is invaluable.

I was SUPER skeptical about Claimyr when I read about it here - seemed too good to be true. But after another frustrating day of trying to reach the IRS about an issue with my new S-Corp filing (6 attempts, got disconnected every single time), I figured I had nothing to lose. I'm honestly shocked to report that it actually worked exactly as described. I submitted my info through their site, and about 45 minutes later got a call connecting me directly to an IRS representative. The agent was able to resolve my question about estimated tax payments for my business, and I didn't have to spend another day hitting redial. For anyone transitioning from W2 to business ownership like the original poster - this service is worth knowing about. The IRS contacts and questions are almost inevitable when you make this switch, and being able to actually reach them when needed is huge. Wish I'd known about this months ago!

One thing nobody has mentioned yet - if you go the LLC route, especially with S-Corp election, you'll lose access to unemployment benefits if things go south. As a W2 employee, you're paying into the unemployment system, but as a business owner, you're not covered. Also consider the retirement plan differences. As a W2 employee, you probably have a 401k with matching. As a business owner, you'll need to set up your own retirement plan. The good news is that Solo 401ks and SEP IRAs often allow higher contribution limits than employee plans. Healthcare is another major consideration. The marketplace plans available to self-employed individuals are often more expensive and provide less coverage than employer group plans. Not saying don't do it - just be sure you're accounting for ALL the differences, not just the tax savings.

hey sorry if this is a dumb question but in your situation have you considered just asking for a raise at your main job instead of all this complicated business stuff? like if you're really that valuable to them maybe they'd just pay you more? seems easier than forming companies and all that

Don't overlook state tax implications in your planning! I noticed you mentioned your second W2 is from another state. If you're forming an LLC, you'll need to consider: 1. Which state to form it in 2. Whether you'll need to register as a foreign entity in other states 3. Whether you'll have nexus (tax presence) in multiple states 4. How your home state treats pass-through entity income I formed my consulting LLC in Wyoming for liability protection but ended up having to register in my home state too and file multiple state returns. The compliance costs eat into the tax savings. Also, if you go with option 2 and create a holding company with two LLCs, that's adding even more complexity and potential state filing requirements. Just something to factor into your decision!

I'm in a similar situation as a healthcare professional who made the transition from W2 to S-Corp last year. A few things I learned that might help: Timing is crucial - don't rush the decision while your primary employer is potentially selling. That uncertainty could work in your favor for negotiations with either the current owner or new buyers. You might get better terms (higher pay, equity stake, etc.) that could make the W2 route more attractive. For the LLC structure, I'd recommend starting simple with just one entity initially. You can always add complexity later, but managing multiple LLCs from day one creates unnecessary overhead and costs. Focus on getting one profitable before expanding. Also consider the cash flow implications - W2 gives you steady paychecks, but business income can be unpredictable, especially in the early stages. Make sure you have 6-12 months of expenses saved before making any major transitions. The tax savings are real, but they only matter if you're actually profitable. I'd suggest keeping your primary W2 job (even if terms change with new ownership) while building your LLC on the side. Once it's generating consistent income, then you can make the switch with confidence. Have you run the numbers on what your LLC would need to generate monthly to replace your W2 income after accounting for benefits, taxes, and business expenses?

I'm also in healthcare and have been wrestling with similar decisions. One thing that helped me was creating a detailed spreadsheet comparing the true net income from each scenario - not just the gross numbers, but factoring in all the hidden costs of self-employment. For example, when I calculated replacing my $180k W2 job, I had to account for: - Self-employment taxes (15.3% on the first ~$160k) - Health insurance premiums (went from $200/month to $800/month for similar coverage) - No more employer 401k match ($7,200/year I was losing) - Professional liability insurance - Business formation and maintenance costs - Accounting/bookkeeping expenses My LLC needed to generate about $220k+ just to match my W2 take-home pay. That was eye-opening. Given the uncertainty with your primary employer's sale, I'd strongly suggest keeping that stable income while you test the waters with your LLC. You mentioned your skills are in high demand - that's actually perfect for negotiating better terms with whoever ends up owning the practice. Have you considered proposing a hybrid arrangement where you maintain your W2 status but negotiate for additional compensation or equity in exchange for helping ensure the business transition goes smoothly? Sometimes the best tax strategy is just earning more money in your current structure.

This is such a complex decision with so many moving pieces! I've been following this thread closely because I'm in a somewhat similar situation as a healthcare professional considering the jump from W2 to business ownership. One thing that struck me from reading all the responses is how much the specific details of your contracts and relationships matter. The fact that your primary employer is trying to sell while being financially overextended, combined with your statement that the facility loves working with you, suggests you might have more leverage than you initially realized. Before diving into the LLC/S-Corp decision, have you considered reaching out directly to the facility to gauge their interest in working with you independently? Sometimes these conversations can reveal opportunities you hadn't considered - maybe they're frustrated with your current employer's financial issues and would welcome a more stable arrangement. From a risk management perspective, I'd lean toward keeping your primary W2 income stable during this transition period while building your LLC client base. The uncertainty around the business sale creates enough volatility without adding the income unpredictability of going fully independent right away. The tax benefits of business ownership are definitely real at your income level, but as others have pointed out, they only help if you're actually generating sustainable revenue. Given that you haven't started operations yet with your LLC, I'd suggest giving yourself at least 6-12 months to build that track record before making any major changes to your primary income source. What's your timeline for when you absolutely need to make this decision? The business sale process could take months, which might give you time to test the waters with your LLC while keeping your options open.

I've been through a similar transition in healthcare and wanted to share some practical insights that might help with your decision. The timing of your employer's potential sale actually creates a unique opportunity. Instead of rushing into a full LLC conversion, consider this a chance to negotiate from a position of strength. Healthcare businesses are heavily dependent on key personnel relationships - which you clearly have given the facility's preference for you. Here's what I'd suggest as a phased approach: **Phase 1 (Next 3-6 months):** Keep your W2 positions while starting to build your LLC client base with smaller contracts. This gives you real data on what you can actually earn independently while maintaining financial stability during the business sale uncertainty. **Phase 2 (6-12 months):** Once you have proven LLC revenue and clarity on the business sale outcome, you can make an informed decision about converting your primary income. By then you'll know: a) what your LLC can realistically generate, b) who the new owners are and what terms they offer, and c) whether the facility would work with you directly. Regarding the tax structure question - S-Corp election makes sense at your income level, but only after you're generating consistent business revenue. The administrative overhead and reasonable salary requirements aren't worth it for a startup LLC that's still building its client base. One often-overlooked advantage: if you do eventually negotiate directly with the facility, you might be able to structure it as a long-term contract that provides more income stability than typical independent work while still getting the tax benefits of business ownership. Have you had any preliminary conversations with the facility about their satisfaction with current arrangements?