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Perhaps I missed a thread on this one; and if so - please point me in the right direction. I'm departing from my present role, which has asked me to stay on as a consultant at a very reasonable rate, fully remote - hard to say no. I have an extremely good rapport with them and am inclined to accept the consulting position. They have offered to allow me to take W2 or 1099; I'm still waiting on figures for the rates comparatively so I'm not sure about that just yet. That said, can anyone provide me some insight as to what it looks like from a tax perspective? Benefits, cons? Should I setup an LLC for the position, or just go direct 1099? Basically, a quick primer would be awesome. For context: - Own our home - Dedicated office space (100% for work, 100% dedicated) - Relatively minimal expenses towards consulting aside from the dedicated office space, and internet connection - Consulting would be either 1099 or W2; W2 rate is ~$78/hr; 1099 rate TBD - waiting on this information. I'm not sure what I dont know; which is the point of this thread. Someone who has been down this road: please school me!
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Mar 9, 2017 21:37
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| # ? Apr 23, 2024 19:07 |
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I was gonna respond with some technical details, but you should really speak with an accountant. I'll give you some general thoughts, but please meet with at least one accountant. Most will do an initial consult for free in hopes of scoring your business when you form a company. Are you good with keeping records? The make the most of 1099 you're going to want to take deductions, and to take deductions you need to keep great records. I know you mention office space, but think about things you use at work, many of them can be deducted. If you're one of those people who can't keep track of that stuff, W2 might be better for you. Forming your own company is a great move and opens you up to other opportunities. Chances are you'll start attracting new clients and things will just roll from there. Having a big client to bankroll you thru the early times is a nice bonus. To be honest, tho, the IRS is the one who determines which you are. This is an extremely important read: https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee Here's a good article: https://www.forbes.com/sites/robertwood/2013/11/21/do-you-want-a-1099-or-a-w-2/#3cc23fd17463
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Mar 10, 2017 00:12
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Thanks! I am 100% not planning to do anything without an accountant. Sadly, they're all booked right now and this change is going to take place before tax season ends. So I'm trying to get my bearings and find someone who can squeeze me in, even if just an initial consult.
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Mar 10, 2017 01:39
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While I am not an expert on this, I have always understood the bigger advantage to making an LLC is that you limit your personal liability for anything that may happen when you contract out to other companies.
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Mar 10, 2017 05:22
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Cheesemaster200 posted:While I am not an expert on this, I have always understood the bigger advantage to making an LLC is that you limit your personal liability for anything that may happen when you contract out to other companies. This is one facet; however I'm finding a lot of references to tax benefits of operating under an S-Corp. I really wish this transition wasnt happening during peak tax season so I could just nail down a CPA for a bit of time.
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Mar 10, 2017 17:03
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Find an attorney. They always have time and will have solid advice for your, as well. And chances are the attorney knows an accountant, and can pull a favor for you and get you a little time (or at least, a brief email conversation to nail down any details the attorney wasn't clear on)
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Mar 13, 2017 20:49
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1099 Pros: Can deduct expenses directly against income Cons: Higher risk of audit. No unemployment/workers' comp. You're paying the employer 1/2 of social security & medicare (AKA "self employment tax") plus any other city/county income taxes. W-2 Pros: Employer eats 1/2 social security/medicare. Can collect unemployment/workers comp if laid off/injured. Lower audit risk (warning: you need to document the crap out of your expenses and keep a copy of your employee manual - talk to a tax guy/gal about this). Cons: Your expenses are thrown onto a spot where they are basically lost (Schedule A, 2% limited, not deductible if standard deduction or in AMT). If you go 1099, form an LLC online (don't go that legal zoom crap, here in Oregon you can form it in around 10 minutes for the state fee of $100). Then get an EIN at irs.gov for free (again, in about 10 minutes). You then don't need to hand out your SSN to every jerk who asks for it, and you can elect down the road to be taxed as a different kind of tax entity (S or C Corp) very easily. DO NOT INCLUDE YOUR SPOUSE AS AN OWNER IF YOU DON'T LIVE IN A COMMUNITY PROPERTY STATE.
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Mar 14, 2017 00:08
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| # ? Apr 23, 2024 19:07 |
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Thank you both. I am inclined to go 1099 and firm an LLC - I think I've finally nailed down a CPA with good reviews and some availability. Thanks for all the insight so far!
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Mar 14, 2017 13:36
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