Next year (starting from January 1st) I am planing to work for company "A" as self-employer (software developer/consulting) for 3 month. After that I am planing to work as full time employee (W2) for the rest of the year for company "B".

Does it make sense to open LLC or S-corp for 3 month self-employer job or just go with Schedule C (Profit or Loss from Business) in individual tax income 1040?

What is the benefits and downsides of opening LLC or S-corp in this case?

1 Answer 1


An LLC protects you from liability, but for contract development work there's likely no need to set one up as you aren't typically exposed to much liability risk in that context. For tax purposes, LLC doesn't really mean anything to the IRS. If you have a single-member LLC, it will be taxed as a sole-proprietorship, or you can elect to have it taxed as an S-Corp or C-Corp.

The advantage of the S-Corp is that you can avoid some self-employment tax by paying yourself a fair wage with some of the income and distributing the remaining earnings to yourself as non-wage income. The reasonable wage part is subjective and people who try to take advantage of it can be challenged by the IRS.

Currently, there is a 20% pass-through deduction that makes S-Corp less attractive than it formerly was for many people. For a 3-month engagement in the current tax environment I wouldn't bother with an LLC/S-Corp election.

Be sure to do some research on which expenses you can rightfully use to offset your business revenue.

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