Running an LLC as an Engineer: What Nobody Tells You
In 2024, I filed the paperwork for Sage Ideas LLC. $125 in filing fees. 20 minutes on the Florida Division of Corporations website. Easy.
Everything after that was the hard part nobody warned me about.
What They Tell You
"Start an LLC for liability protection. Take consulting gigs. Write off your laptop. Be your own boss."
Great pitch. Here's the reality.
What They Don't Tell You
Self-Employment Tax Is 15.3%
As an employee, your employer pays half of Social Security and Medicare taxes. As an LLC, YOU pay both halves. That's 15.3% on top of your income tax.
At $150K income:
- As W-2 employee: ~$5,700 FICA (your half)
- As LLC: ~$22,950 self-employment tax
That $23K difference is the "freedom tax." It's real, it's every year, and most "start a consulting business" articles conveniently forget to mention it.
The mitigation: S-Corp election. Once your income justifies it (~$80K+), electing S-Corp treatment lets you split income into salary (subject to FICA) and distributions (not subject to FICA). You'll need an accountant for this.
Quarterly Estimated Taxes
No employer is withholding taxes from your checks. The IRS expects quarterly payments: April 15, June 15, September 15, January 15.
Miss one? Penalty. Underpay? Penalty. Pay the right amount but a day late? Believe it or not, penalty.
I set aside 30% of every payment into a separate savings account labeled "TAXES DO NOT TOUCH." It's not elegant but I've never been surprised at tax time.
Health Insurance Is Expensive
Employer-sponsored health insurance costs you maybe $200-400/month (they pay the rest). Individual health insurance: $500-1,200/month depending on your state, age, and plan.
In Florida, my options were $680/month for a decent PPO or $420/month for a high-deductible plan with a $7,000 deductible. I went with the HDHP and opened an HSA (triple tax advantage — deductible contributions, tax-free growth, tax-free medical withdrawals).
Contracts Are Your Only Protection
When you're W-2, employment law protects you. When you're 1099/LLC, the contract IS the law.
My contract template includes:
- Scope of work (exactly what I'm building, not "whatever you need")
- Payment terms (50% upfront, 50% on delivery. Non-negotiable.)
- Revision limits (2 rounds of revisions included, additional at hourly rate)
- IP assignment (client owns the code upon final payment)
- Kill clause (either party can terminate with 14 days notice, pro-rated payment for work completed)
- Liability cap (my liability is limited to the total contract value)
I learned about the kill clause the hard way — a client ghosted midway through a project. Without the clause, I had no way to formally end the engagement and free myself up for other work.
The Feast-or-Famine Cycle
Month 1: Three clients want projects. You're overbooked. Month 3: All three projects finish. Your pipeline is empty. Month 4: You're scrambling for new clients while burning runway.
My fix: always have 6 months of expenses in the business account. This lets me say no to bad projects during feast times and survive without panic during famine times.
Why I Still Do It
Despite the taxes, insurance, contracts, and uncertainty — I wouldn't go back to full-time employment (at least not without the right opportunity).
The reasons:
- I choose what I build. No sprint planning for features I disagree with.
- I choose who I work with. Toxic client? End the contract.
- I build equity in my own brand. Every project I complete adds to Sage Ideas' portfolio, not some company's internal tools.
- The income ceiling is higher. A senior engineer tops out at $250-350K in salary. A consultant billing $150/hr at 30 hours/week makes $234K — with more flexibility.
The Advice I'd Give Past Me
- Get an accountant before you need one. Don't figure out S-Corp election and quarterly taxes on your own.
- Say no to your first client offer. Not literally — but negotiate. The first offer is never the best offer.
- Build your personal brand before you need clients. My portfolio site generates inbound inquiries now. That took a year to build.
- Keep your W-2 job until your LLC has 3 months of runway. Don't jump without a net.
The LLC isn't the hard part. The discipline — saving for taxes, maintaining health insurance, managing feast-and-famine — that's the real work.