Resident Side Gigs: Setting Up an LLC and Handling 1099 Income

The biggest mistake residents make with side gigs is acting like W‑2 employees when they are actually running a small business. If you are getting 1099 income, you are a business. Period. Treat it that way or you will overpay taxes, take unnecessary legal risk, and create an accounting mess that will haunt you in fellowship and beyond.

This is fixable. And it is not as complicated as people make it sound.

You do not need a JD/CPA/MBA combo to set this up correctly. You need a simple, repeatable system. I will walk you through exactly how to structure your 1099 side work, when an LLC actually helps, and how to avoid the traps that burn residents every single year.

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Step 1: Understand What 1099 Income Really Means

Let us get crystal clear on the problem before we fix it.

When you get a W‑2 from your residency:

• The hospital withholds taxes.
• You are treated as an employee.
• Social Security and Medicare are handled.
• You get benefits (health insurance, maybe retirement, etc.).

When you get a 1099 (often a 1099‑NEC for services):

• Nobody withholds taxes for you.
• You are an independent contractor.
• You owe both the employer and employee side of Social Security/Medicare (self‑employment tax).
• You are a business in the eyes of the IRS. Even if it is just you.

So if you do:

• Telemedicine shifts
• Per‑diem ED or urgent care work outside your main GME contract
• Chart review for an insurance company
• Expert witness work
• Content creation (paid blogging, consulting, YouTube, etc.)

… and they pay you via 1099, you are not “just picking up a shift.” You are running a sole proprietorship or LLC that provides professional services.

Here’s the fork in the road:

• Do nothing: You stay a sole proprietor by default, file Schedule C, and hope you tracked everything.
• Set up an LLC: You formalize the business, protect yourself a bit, and potentially set up better banking and contracts.

Both can be correct. The trick is knowing which one you are actually doing and then organizing your life accordingly.

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Step 2: Decide If You Actually Need an LLC (During Residency)

Most residents assume: “1099 = must form LLC now.” That is wrong. You can operate as a sole proprietor under your own name with:

• No LLC
• No special filings beyond your taxes

But that does not mean it is optimal.

Let me give you a practical decision framework.

Scenario	Best Default Structure
One small side gig, <$5k/year	Sole proprietor
Multiple gigs, $5k–$30k/year	LLC recommended
Planning to grow long term	LLC strongly preferred
High‑risk advisory/consulting	LLC + good contract
Multi‑partner project	Multi‑member LLC

When a sole proprietorship is fine

You can usually skip the LLC (for now) if:

• Your 1099 income is small (a few thousand a year).
• You have one straightforward gig (e.g., occasional telemed through one vendor).
• You are just testing the waters and may stop after a year.

In that case:

• Use your own legal name for the contract.
• Use your SSN (or get an EIN — we will get to that).
• Keep simple records and file a Schedule C with your tax return.

You accept:

• No formal liability shield.
• No separation of “you” vs “business.”
• Still eligible for business deductions and QBI in many cases.

When an LLC makes sense even in residency

Form a single‑member LLC if:

• You are consistently earning 1099 income (e.g., $10k+ per year).
• You are contracting with multiple entities: telemed + chart review + locums.
• You want cleaner separation: business bank account, contracts in LLC name, easier scaling post‑residency.
• You are planning a longer game: independent consulting, content business, or future private practice.

The LLC gives you:

• Legal structure: a wrapper around your operations.
• Professional appearance: “Smith Medical Consulting, LLC” sounds serious.
• Cleaner finances: business bank account, card, etc.
• Easier to add partners/co‑owners in the future.

What the LLC does not magically do:

• It does not protect you from malpractice claims. That is your malpractice coverage’s job.
• It does not change how your income is taxed if it is a single‑member LLC (it is still pass‑through, Schedule C by default).
• It does not eliminate self‑employment tax.

Where residents get confused: They think “LLC = huge tax savings.” The savings usually come later if you make enough to justify S‑Corp taxation, which most residents do not. For now, you want organization and future flexibility, not fancy tax games.

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Step 3: How to Set Up an LLC the Right Way (State by State)

You do not need to pay LegalZoom $800 to form an LLC for your $12k telemed side hustle. The process is boring but simple.

Here is the barebones playbook:

1. Choose your state

For residents, the answer is almost always:

• Form your LLC in the state where you actually live and work.

Ignore the “form in Wyoming/Delaware/Nevada” nonsense. That is for larger, complex businesses and usually creates more hassle (foreign registration, extra fees) for you.

2. Pick a name

Basic rules:

• Most states require “LLC” or “L.L.C.” at the end.
• Avoid using “Medical Practice” or similar protected wording unless you are forming a professional entity according to your state’s rules.
• Simple is fine: “Smith Medical Consulting, LLC,” “Jones Physician Services, LLC,” “White Coat Advisory, LLC.”

Check your state’s Secretary of State website business search to confirm it is available.

3. File Articles of Organization

Go to your Secretary of State (or equivalent) website → “Business” → “Form an LLC.”

You will usually need to provide:

• LLC name
• Your name and address as organizer/member
• Registered agent (often you, at your mailing address)
• Filing fee (often $50–$300 depending on the state)

Do not overthink the form. You are a single‑member professional services LLC. Fill it out and submit online if possible.

4. Create a simple Operating Agreement

Most states do not require you to file this, but you should have one in your records.

For a single‑member LLC it is basically a 2–5 page document that says:

• You own 100% of the LLC.
• The LLC is treated as a disregarded entity for tax purposes.
• You control management and distributions.

You can find templates from reputable business/legal sites and edit them. Do not pay thousands for this at your income level. Just avoid sketchy sources or AI‑generated legal forms.

5. Get an EIN from the IRS (free)

Even for a single‑member LLC that is taxed as a disregarded entity, get an EIN:

• Go to the IRS website: “Apply for an Employer Identification Number (EIN) Online.”
• Choose “Limited Liability Company.”
• Use your SSN as the responsible party.
• At the end, you get an EIN immediately.

Why bother?

• You can give your EIN to vendors instead of your SSN (less identity risk).
• Needed to open a business bank account.
• Makes your business more “real” in the eyes of payers.

6. Open a business bank account

At a local bank or major online bank:

• Bring: LLC approval docs + EIN letter + ID.
• Open: one basic checking account.
• Optional but nice: business credit card (cash‑back, no annual fee).

Rule from day one:

• All 1099 checks and deposits → to the LLC account.
• All business expenses → paid from the LLC account or card.
• Transfers to yourself → “Owner’s draw” (not W‑2 wages from the LLC if you are just a disregarded entity).

This single banking step is where I have seen residents completely transform their financial clarity. Suddenly tax time is not a scavenger hunt through months of mixed personal/business spending.

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Step 4: Handling 1099 Income — Taxes Without the Panic

The IRS does not care that you were on 28‑hour call when your estimated tax payment was due. If you earn 1099 income and owe more than a small amount in tax, they expect you to make quarterly estimated payments.

Your tax obligations with 1099 income

As a resident with side gigs, you will typically owe:

1. Federal income tax on your net profit.
2. Self‑employment tax (Social Security + Medicare, roughly 15.3% of net up to certain limits).
3. State income tax on your net profit (if your state has income tax).

The key term is net profit:

Net profit = 1099 income – legitimate business expenses

You report this on Schedule C (Profit or Loss From Business) attached to your Form 1040.

Simplified tax planning rule

A simple, aggressive rule that usually protects you:

• Immediately set aside 30–35% of every 1099 payment into a “tax” subaccount.

If you are in a high‑tax state or doing very well, go toward 35–40%. If you overshoot, you get a refund. Under‑shoot and you pay penalties.

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Example 1099 Income Allocation for a Resident

Category	Value
Take-home pay	50
Taxes set aside	40
Business expenses	10

Example:

• $2,000 telemed check hits your LLC account.
• You immediately move $800 (40%) to a separate “Business Taxes” savings account.
• You pay CME, subscriptions, etc. from the main business checking.

At the end of the year, your CPA tells you exactly how much you owe. You already have most or all of it parked in that tax account.

Quarterly estimated taxes (do not ignore this)

If your 1099 income becomes more than a token amount (say >$5,000–$7,000 net per year), you should be making quarterly estimated payments:

• Deadlines usually: April 15, June 15, September 15, January 15.
• Paid via IRS Direct Pay (for federal) and your state’s tax portal.

You or your CPA will:

1. Estimate your annual 1099 net income.
2. Multiply by your combined tax rate.
3. Divide into four roughly equal payments.

If you are early in this game and unsure, lean conservative: make a decent estimate, pay something each quarter, keep good records. The IRS penalizes underpayment, not overcautious organization.

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Step 5: What You Can Actually Deduct (Without Getting Cute)

This is where residents either:

• Leave thousands on the table out of fear.
• Or go wild and deduct their dog as “security.”

You want the middle path: legitimate, supportable deductions that reflect reality.

Your 1099 side gig is a business. Ask: “Would I have spent this if I did not have this side work?” If no, it is probably deductible.

Common, defensible deductions for resident side gigs:

• Licensing and fees
  • State medical license (if required for the gig)
  • DEA registration (if you need it for your 1099 work)
  • Hospital staff fees for your moonlighting site
• Malpractice insurance
  • If you pay your own coverage for 1099 work
• CME and education related to your side work
  • CME courses you need to maintain competence in that field
  • Paid medical webinars, workshops, relevant board review
• Professional services
  • Accountant for business tax work (pro‑rated if they handle personal + business)
  • Legal review of contracts
• Home office (careful but powerful)
  • If you do telemedicine, consulting, or chart review from a dedicated space at home, a portion of:
    • Rent
    • Utilities
    • Internet
    • Homeowner’s/renter’s insurance
• Equipment and tools
  • Laptop used for charting/telemed/consulting
  • Headset, webcam, microphone for telemed
  • Printer, scanner
• Phone and internet
  • Business proportion of your cell and internet bills
• Travel
  • Mileage to moonlighting sites not considered your main place of work
  • Parking and tolls for that business‑related travel

Where I have seen residents get in trouble: trying to write off everything under the sun. Grocery runs, vacations disguised as CME with no real educational activity, personal car leases that are 90% personal.

Ask yourself a boring question: “If I had to defend this to an IRS agent in a meeting, would I feel comfortable?” If the answer is no, do not deduct it.

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Step 6: Bookkeeping That Does Not Suck

You are not going to become a full‑time bookkeeper during residency. You need a system that is:

• Simple enough to maintain on call weeks.
• Robust enough that tax prep is easy.

Minimum viable system

1. Separate business banking (we already covered this).
2. Digital record of all transactions:
   • Bank feeds or statements from your business account and card.
3. Monthly 20‑minute cleanup session:
   • Open your bank app or simple spreadsheet.
   • Categorize income and major expenses:
     • Income: “Telemed – Vendor A,” “Locums – Site B,” etc.
     • Expenses: “CME,” “Malpractice,” “Licensing,” “Office supplies.”
   • Scan or save PDFs of big receipts (CME conferences, malpractice, new laptop).

You can use:

• A simple Google Sheet or Excel file.
• Basic accounting software (e.g., Wave, QuickBooks Simple Start) if you like structure.

Without this, your CPA visit in March turns into forensic accounting. That is when you either overpay because you cannot document expenses or underreport something by mistake.

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Resident 1099 Side-Gig Setup Flow

Step	Description
Step 1	Start 1099 Side Gig
Step 2	Sole proprietor
Step 3	Form LLC
Step 4	Get EIN and open separate account
Step 5	File LLC, get EIN, open biz account
Step 6	Track income and expenses
Step 7	Set aside 30 to 40 percent for taxes
Step 8	Make quarterly estimates
Step 9	File Schedule C with CPA
Step 10	Total income small or growing?

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Step 7: S‑Corp, Professional Corporations, and Other Advanced Stuff

You will hear co‑residents say:

• “My cousin’s dentist formed an S‑Corp and saves thousands.”
• “You have to be a PC/PLLC because you are a doctor.”

Here is the blunt version for residents:

S‑Corp status

An LLC can elect to be taxed as an S‑Corporation. This can save money on self‑employment tax if your net income from the business is high enough.

Rules of thumb from real life:

• Below ~$50k of consistent net profit from the gig → Usually not worth S‑Corp complexity.
• Between ~$50–100k → Maybe worth running numbers with a CPA.
• Above ~$100k → Strong case to evaluate.

Why? Because with an S‑Corp you:

• Pay yourself “reasonable salary” (W‑2 wages, subject to payroll taxes).
• Take remaining profits as distributions (not hit with self‑employment tax).

Sounds great. Comes with:

• Payroll setup and filings.
• Separate corporate tax return.
• More documentation and risk if you underpay yourself as “salary.”

For a typical moonlighting resident making $10–40k in 1099 income, S‑Corp is overkill. Get residency done first. Revisit at attending pay level.

Professional LLC or Corporation (PLLC, PC)

Some states require licensed professionals (including physicians) to use:

• A “Professional LLC” (PLLC)
• Or a “Professional Corporation” (PC)

This is state‑specific. Your state medical board or Secretary of State website will usually be clear about:

• Whether physicians must use a professional entity structure.
• Whether you can just form a standard LLC for consulting/telemed.

Do not guess. Check:

• State Secretary of State “Business Formation” section.
• State medical board FAQ about business structures.
• Or ask a local CPA/attorney who works with physicians.

Again, do not let perfect be the enemy of done. In many states, a straightforward LLC for “consulting/telemedicine” is fine. When in doubt, get a 30‑minute consult, fix it early, and move on.

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Step 8: Moonlighting Contracts and How to Use Your LLC Properly

Here is where the LLC actually earns its keep.

When you sign a contract for 1099 work, you want:

• The LLC as the contracting party.
• Payment to the LLC, using the LLC’s EIN.
• Your name as the signing member/manager.

Instead of:

Provider: John Smith, MD
SSN: 123‑45‑6789
Payee: John Smith

You want:

Provider: Smith Medical Consulting, LLC
EIN: 12‑3456789
Payee: Smith Medical Consulting, LLC
Signature: John Smith, MD, Member

Why this matters:

• Keeps your SSN off as many documents as possible.
• Reinforces that the business, not you personally, is taking on contract risk (to the extent the law allows).
• Keeps your revenue flowing cleanly into the business account.

Also look for:

• Malpractice clause: Who covers it? If you must secure your own, get proof and deduct it.
• Indemnification: Anything absurdly one‑sided, consider having a lawyer at least glance at it.
• Exclusivity / non‑compete: Some telemed contracts try to lock you out of similar platforms. That may not be worth it.

You do not need a 20‑page legal review for a simple per‑diem gig. But do not sign away your future for $120/hour telemed.

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Step 9: Insurance, Risk, and What the LLC Does Not Fix

Residents often assume: “LLC = I am safe.” No.

Your malpractice exposure as a resident:

• Follows you personally as a licensed physician.
• Is primarily addressed with malpractice insurance (tail coverage if needed).

What an LLC can help with:

• Contract and business‑related liability. For example, a billing dispute, a contract fight, or some minor non‑clinical claim.

What it cannot magically shield:

• You personally mismanaging a patient.
• Fraud, gross negligence, or intentional wrongdoing.

If you are doing clinical 1099 work:

• Confirm exact malpractice coverage:
  • Who pays.
  • Per‑claim and aggregate limits.
  • Occurrence vs claims‑made.
  • Tail coverage when you stop.
• Keep copies of your policies and declarations.

If you are doing non‑clinical work (consulting, education):

• Consider general liability + professional liability (E&O) if your income and risk justify it.

Do not lean on “I have an LLC” as your risk plan. It is one tool, not a force field.

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Step 10: A Simple, Resident‑Proof System You Can Run

Let me pull all of this into a single, repeatable setup.

If you are just starting 1099 work (and expect <$10k this year)

1. Stay a sole proprietor at first.
2. Apply for an EIN (use that instead of SSN).
3. Open a separate checking account (can be just a “business” account under your name).
4. Route all 1099 payments to that account.
5. Pay business expenses from that account.
6. Move 30–35% of every payment to a “tax savings” subaccount.
7. Track everything monthly in a simple spreadsheet.
8. Hire a CPA at tax time familiar with physicians and 1099 income.
9. If income grows or you add more gigs → upgrade to an LLC in your state using the steps above.

If you are already at $10k+ 1099 income and plan to keep going

1. Form an LLC (or PLLC/PC if required by your state).
2. Get an EIN specifically for the LLC.
3. Open a business checking account in the LLC name.
4. Ask new and existing payers to:
   • Update the contract to your LLC where possible.
   • Pay the LLC using the LLC’s EIN.
5. Consolidate all business activity through that LLC account:
   • Income deposits
   • CME, malpractice, licenses, subscriptions
6. Automate tax discipline:
   • Every deposit → automatically transfer 35–40% to tax subaccount.
7. Bookkeeping:
   • Monthly: categorize transactions.
   • Quarterly: update income/expense totals and confirm tax estimates with your CPA.
8. Reassess each year:
   • Income level?
   • Need to consider professional corporation status?
   • Any reason to evaluate S‑Corp election after residency?

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The residents who come out ahead are not the ones with the flashiest side gig. They are the ones who treat their 1099 work like a real business from day one.

Do this now: Open your banking app and your last 3 months of 1099 deposits. If that income is mixing with your personal spending, decide today whether you are going to (1) open a dedicated account as a sole proprietor or (2) take one evening this week to file an LLC online in your state and then open a proper business account. Pick one path and start cleaning the separation up now.