Complete 1099 LLC Setup Guide for Physicians

If you're a locum tenens or independent contractor physician earning 1099 income, you're likely overpaying on taxes. The difference between operating as a sole proprietor versus setting up a proper business entity can easily cost you $10,000-15,000 per year in unnecessary self-employment taxes.

This comprehensive guide walks you through exactly how to set up an LLC for your 1099 physician work, when to elect S-Corp status, and how to maximize your tax savings—all while staying compliant with IRS regulations.

Why 1099 Physicians Need an LLC

When you work as an independent contractor, you're technically operating a business—whether you realize it or not. The question isn't whether you should formalize your business structure, but rather which structure gives you the best combination of tax benefits and legal protection.

Here are the key reasons 1099 physicians should set up an LLC:

• Tax Savings: With proper structuring (especially S-Corp election), you can save $10,000-15,000 annually in self-employment taxes
• Legal Protection: Separates your personal assets from business liabilities
• Professional Credibility: Presents a more established image to facilities and agencies
• Retirement Benefits: Opens up additional retirement contribution options (Solo 401k, SEP IRA)
• Business Deductions: Formalizes your ability to deduct legitimate business expenses

Step 1: Choose Your State

Your first decision is where to form your LLC. Most physicians should form in their home state—the state where you live and primarily work. Here's why:

• Forming out-of-state (like Delaware or Nevada) creates unnecessary complications
• You'll still need to register as a "foreign entity" in your home state anyway
• This means double the filing fees and double the annual reports
• The supposed "tax benefits" of Delaware don't apply to single-member LLCs

Exception: If you work in multiple states regularly, form in the state where you have the most substantial presence (where you live or where you work most frequently).

Step 2: Name Your LLC

Your LLC name must follow your state's requirements, which typically include:

• Must include "LLC" or "Limited Liability Company"
• Must be distinguishable from existing business names in your state
• Cannot include restricted words (like "Bank," "Insurance," etc.) without proper licensing

Common naming formats for physician LLCs:

• [Your Name] Medical Services, LLC
• [Your Name], MD, LLC
• [Your Name] Professional Services, LLC
• [Your Specialty] Consulting, LLC

Before settling on a name, search your state's business registry to ensure it's available. Most states allow you to reserve a name for a small fee ($10-50) while you complete the formation process.

Step 3: File Articles of Organization

This is the official document that creates your LLC. Here's what you need to know:

Required Information:

• LLC Name: As discussed above
• Principal Address: Your business address (can be your home)
• Registered Agent: The person/entity authorized to receive legal documents on behalf of your LLC
• Management Structure: Member-managed (standard for single-member LLCs)
• Purpose: "Medical consulting services" or "Professional medical services"

Filing Process:

Most states allow online filing through the Secretary of State website. The process typically takes:

• Filing Time: 15-30 minutes
• Processing Time: 1-4 weeks (varies by state)
• Cost: $50-300 depending on your state

Registered Agent Options:

You have three options for your registered agent:

1. Yourself: Free, but you must be available at your registered address during business hours
2. Registered Agent Service: $100-300/year, handles service of process professionally
3. Your Attorney: If you're working with one, they can serve as your agent

For most 1099 physicians, using a registered agent service is worth the cost for privacy and convenience.

Step 4: Get Your EIN

Your Employer Identification Number (EIN) is like a Social Security number for your business. Even if you're a single-member LLC, you'll need one if you plan to elect S-Corp status or hire any employees.

How to Get Your EIN:

1. Go to IRS.gov and search for "Apply for EIN Online"
2. Complete the online application (takes about 10 minutes)
3. Receive your EIN immediately upon completion
4. Download and save your EIN confirmation letter

Cost: Free through the IRS (beware of third-party services charging $50-200 for this free service)

Step 5: Create an Operating Agreement

Even though most states don't require an operating agreement for single-member LLCs, you absolutely should have one. Here's why:

• Reinforces the separation between you and your business (protects liability shield)
• Required by most banks to open a business account
• Establishes your rules and procedures if you add partners later
• Provides clarity for tax treatment

What to Include:

• Member information (you)
• Management structure (member-managed)
• Capital contributions
• Profit and loss allocation
• Dissolution procedures

You can find templates online or have an attorney draft one. Budget $300-800 if you're using an attorney.

Step 6: Open a Business Bank Account

Keeping your business finances separate from personal finances is critical for:

• Maintaining your LLC's liability protection
• Simplifying bookkeeping and taxes
• Looking professional to clients and the IRS

What You'll Need:

• EIN confirmation letter
• Articles of Organization
• Operating Agreement
• Driver's license or other ID

Most banks offer business checking accounts with no monthly fees if you maintain a minimum balance. Shop around for the best terms.

Step 7: S-Corp Election (The Big Tax Saver)

This is where the real tax savings happen. By default, your single-member LLC is a "disregarded entity" for tax purposes—meaning you still pay self-employment tax on all profits.

But when you elect S-Corp status, you can split your income into:

• Salary: Subject to payroll taxes (15.3%)
• Distributions: NOT subject to self-employment tax

How Much to Pay Yourself as Salary:

The IRS requires you to pay yourself a "reasonable salary" for the work you perform. What's reasonable depends on:

• Your specialty
• Your geographic location
• Comparable W-2 salaries in your market

As a general rule for 1099 physicians:

• $200K-250K total income: 60-70% as salary
• $250K-350K total income: 50-60% as salary
• $350K+ total income: 40-50% as salary

How to File S-Corp Election:

1. File Form 2553 with the IRS
2. Timing: Must be filed by March 15th to be effective for the current year, or within 2 months and 15 days of forming your LLC
3. Cost: Free to file

Step 8: Set Up Payroll

Once you've elected S-Corp status, you're legally required to run payroll for yourself. You have two options:

Option 1: Payroll Service

Cost: $30-100/month

Popular services: Gusto, QuickBooks Payroll, ADP

What they handle:

• Calculate and withhold payroll taxes
• File quarterly payroll tax returns
• Generate W-2 at year-end
• Handle federal and state compliance

Option 2: Do It Yourself

Cost: Your time

What you'll need to do:

• Calculate payroll taxes manually
• File Form 941 quarterly
• Make quarterly tax payments
• Generate your own W-2
• Comply with state payroll requirements

Recommendation: Use a payroll service. The cost is tax-deductible, and the time saved (plus reduced error risk) is well worth it.

Step 9: Set Up Bookkeeping

Proper bookkeeping is essential for:

• Maximizing deductions
• Preparing accurate tax returns
• Supporting your deductions if audited
• Understanding your business finances

Bookkeeping Options:

1. QuickBooks Online: $30-90/month, industry standard
2. Wave: Free, good for simple situations
3. Xero: $13-70/month, user-friendly interface

At minimum, track:

• All business income (1099s from facilities/agencies)
• All business expenses by category
• Mileage (if you travel between sites)
• Your salary payments
• Your distribution payments

Common Deductible Expenses for 1099 Physicians

Once you have your LLC set up, make sure you're deducting all legitimate business expenses:

• CME and licensing: Continuing education, board certification, state licenses
• Professional dues: Medical society memberships, specialty board fees
• Malpractice insurance: Your tail coverage or occurrence policy
• Travel: Mileage, flights, hotels for work assignments
• Home office: If you have a dedicated workspace (use simplified method: $5/sq ft up to 300 sq ft)
• Professional services: Accountant, attorney, credentialing services
• Medical equipment: Stethoscope, scrubs, diagnostic tools
• Technology: Computer, tablet, phone (business use percentage)
• Insurance: Business liability, disability insurance

Ongoing Compliance Requirements

After you've set up your LLC, don't forget about ongoing requirements:

Annual Requirements:

• Annual Report: Most states require this ($50-100/year)
• Business Tax Return: File Form 1120S by March 15th
• Personal Tax Return: File Form 1040 with K-1 from your S-Corp by April 15th
• License Renewals: Medical license, DEA, state-specific permits

Quarterly Requirements:

• Estimated Tax Payments: Pay quarterly if you expect to owe $1,000+ at year-end
• Payroll Tax Filings: Form 941 due quarterly
• Payroll Tax Payments: Generally due monthly or semi-weekly depending on your payroll size

When to Hire Professional Help

While you can technically set up and run your LLC yourself, most physicians benefit from professional help. Here's when to hire specialists:

Attorney ($500-2,000):

• If you work in multiple states
• If you have complex liability concerns
• If you're adding partners or employees

CPA ($1,500-3,500/year):

• Always recommended for S-Corp setup and tax prep
• Helps determine optimal salary vs. distribution split
• Ensures compliance with payroll requirements
• Typically pays for themselves in tax savings

Bookkeeper ($200-500/month):

• If you hate bookkeeping
• If your time is better spent earning income
• If you want monthly financial statements

Final Thoughts

Setting up an LLC for your 1099 physician work is one of the highest-ROI financial moves you can make. The tax savings alone—typically $10,000-15,000 per year—will far exceed the setup and maintenance costs.

The key is to do it right from the beginning:

• Form in your home state
• Get proper documentation in place
• Elect S-Corp status if you're earning $100K+
• Set up payroll correctly
• Track everything in accounting software
• Work with a qualified CPA

Done properly, your LLC will provide tax savings, legal protection, and professional credibility throughout your independent contractor career.

Ready to get started? Schedule a free consultation to discuss your specific situation and determine the optimal structure for your 1099 income.