Should I Form a PLLC?

When determining what type of entity is best for our clients, there are many things that must be taken into consideration. For instance, which state you live in, annual income, and even occupation all effect what structure is best suited to you. Depending on how you fall into those categories, we might recommend a Sole proprietorship, LLC, S corporation, or PLLC. For this article, we will be focusing on the PLLC entity structure.

PLLC stands for professional limited liability company. PLLC is an entity structure specifically designated for licensed professionals (I.E. doctor, lawyer, registered nurses). Forming your personal service business as a PLLC will protect you personally from creditors seeking unpaid debts owed by the PLLC, provides legal liability protection from any legal claims brought against the business, and also provides asset protection. However, it will not provide protection from professional malpractice.

As far as taxes are concerned, a PLLC is taxed like a sole proprietorship. It is a flow through entity, so all income and earnings passes through the entity, for you to claim on your schedule C, with your 1040. However, a PLLC can elect to be treated as an S corporation by the IRS, for tax purposes. An S corporation allows you to pay yourself a salary, which shields a portion of your income from self employment taxes, effectively saving you thousands. The remaining income is received as tax efficient dividends. For more information about S corp click here.

There are 30 states in total that have legislation recognizing and allowing PLLCs as an entity structure, while only 3 of those states require it for professionals. Then there is California, which doesn’t allow licensed professionals to form an LLC or PLLC, but requires you to form a professional corporation if wish to operate with the protection of a business entity.

As you can see, there are slight differences from state to state, which is why we have compiled a list of all 50 states as well as D.C. The list will indicate whether they allow for PLLCs to be formed and if they are required for licensed professionals..

Please note that each state has a different list of professions that might be eligible and/or required to form a PLLC. If you are a licensed professional, and find that your state does require professionals to form PLLCs, please contact a local business attorney or your licensing boards to find out if your personal service business falls under the PLLC umbrella. For more information on your states guidelines for PLLCs, LLCs, and PCs (professional corporations), click here.

Here at Independent Contractor Tax Advisors, we are experts on all things related to independent contractors and their taxes. If you find that your state requires you to have a PLLC, or you simply want to find out how you can save more taxes, contact us today to set up a free tax consultation today!

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Tags: entity formation, freelancer, independent contractor