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Possibly changing jobs from W-2 to 1099 - things to consider
Posted on 5/10/16 at 10:22 pm
Posted on 5/10/16 at 10:22 pm
I've been a W-2 employee for 20+ years. I have the opportunity to become an outside consultant with a company I know fairly well. I'm more than likely taking the position, but I'm trying to think of all the pros/cons to changing. Paying my taxes quarterly, getting my own insurance, and planning for my own retirement are the things I have already considered. Am I missing anything else?
8
Posted on 5/10/16 at 10:27 pm to CajunInFL
quote:
Paying my taxes quarterly
Remember, you have to make quarterly state & federal estimates plus the employer portion (another 15% or so).
And additional time/effort to track everything for write off purposes.
Get a good CPA
This post was edited on 5/10/16 at 10:29 pm
Posted on 5/10/16 at 10:57 pm to CajunInFL
Self employment tax is real and painful.
Posted on 5/10/16 at 10:59 pm to CajunInFL
Healthcare is real and painful
Posted on 5/10/16 at 11:24 pm to 8thyearsenior
Yes, it is.
Posted on 5/11/16 at 5:37 am to CajunInFL
Receipts, keep them.....all of them. Even the ones you find on the ground.
Posted on 5/11/16 at 7:15 am to CajunInFL
Setup an LLC
besides health and dental, you may need business liability insurance.
besides health and dental, you may need business liability insurance.
Posted on 5/11/16 at 7:25 am to Chicken
Dental is hardly a necessity, unless your teeth are all jacked up.
Posted on 5/11/16 at 7:51 am to iknowmorethanyou
quote:
Dental is a necessity unless you want your teeth all jacked up.
FIFY
Posted on 5/11/16 at 8:04 am to Chicken
quote:
besides health and dental, you may need business liability insurance.
Depending on what he does he might need E&O as well.
Posted on 5/11/16 at 8:42 am to CajunInFL
quote:
Am I missing anything else?
The benefits/advantages. A lot more of your expenses incurred in doing your job will be deductible. I would consider forming a LLC, if that's an option, and operate that way. Get good tax advice on how to maximize your take home pay.
I would also get out of the mindset of negotiating as an employee. You won't have any of the protections of a W-2 employee. They're not paying your benefit package - you are. You don't want to price yourself out of the market, but you have to charge what makes sense. The amount you ask for as a contractor/consultant has to be your "all in" number, although you do want to think mid-term and long-term.
Posted on 5/11/16 at 9:03 am to Janky
quote:
Receipts, keep them.....all of them.
To piggyback on that, open a separate checking account to run all income and expenses through.
Posted on 5/11/16 at 9:21 am to CajunInFL
as a 1099 contractor, remember to ask for way way way more compensation . Father has a friend making $3,000 a day oilfield in India as a 1099 contractor.
Posted on 5/11/16 at 9:39 am to crazycubes
He must have the biggest truck nuts ever.
Posted on 5/11/16 at 10:30 am to Ace Midnight
I'm definitely forming an LLC. As far as compensation goes, that's already pre-determined. I'll be consulting for dealerships and will get paid per dealership that I consult. Work is already there, so I don't have to cold call to get new business. The more dealerships I review, the more money I make.
Posted on 5/11/16 at 11:16 am to CajunInFL
quote:
I'm definitely forming an LLC. As far as compensation goes, that's already pre-determined. I'll be consulting for dealerships and will get paid per dealership that I consult. Work is already there, so I don't have to cold call to get new business. The more dealerships I review, the more money I make.
That's outstanding. You are ahead of a lot of folks at this stage, frankly. But, as the saying goes, "Get ahead, stay ahead." Structuring your transition from employee to consultant is important as well. You need a good, business CPA.
If you're going to be doing your business primarily out of a vehicle and at these dealerships, then it might not be worth the hassle of a home office. But, if you're going to be working from your home, substantially, I would consider building out a dedicated office for the purpose. Either way, if you use dedicated space OR space within your home, make sure you get with the CPA for exactly what he needs for your home office deduction and vehicle deduction. Not knowing what other specialized tools, training or other expenses to this specific consulting field, office and vehicle will likely be your biggest deductions and, therefore, yield the best ROI on your return.
I would get a P.O. box, frankly, to keep your LLC mail completely separate from your residential. I would get separate professional cell number, and set that up with a voicemail specific to the business. I would pay for encrypted cloud space for your business files. The luxury of driving around, with your laptop/tablet/phone and having access to your business will make your life easier. Make sure you get your EIN from the IRS, and satisfy all local and state business licensure requirements. You need to set that up as far in advance as possible, because you don't want to have an unwanted gap between employment and consulting.
I know that's a lot of overhead, but doing things right from the beginning will save you lots of headaches later, particularly at tax time and if you try to diversify or expand your business.
This post was edited on 5/11/16 at 11:18 am
Posted on 5/11/16 at 11:59 am to CajunInFL
as Janky said, keep damn good records. The IRS is pretty limited in their resources currently. Auditing the corps and s corps takes a more highly trained agent. Someone with a HS education can audit an individual return, so they're really getting after sch c filers.
So while its wonderful to write off everything under the sun as a 1099 guy, just remember pigs get fed, hogs get slaughtered.
If income is high enough, you should look into doing an s election to be taxed as an s corp. You'd need to draw a salary and incur a few other costs, but the tax savings ends up being worth it.
So while its wonderful to write off everything under the sun as a 1099 guy, just remember pigs get fed, hogs get slaughtered.
If income is high enough, you should look into doing an s election to be taxed as an s corp. You'd need to draw a salary and incur a few other costs, but the tax savings ends up being worth it.
This post was edited on 5/11/16 at 12:53 pm
Posted on 5/11/16 at 1:33 pm to Ace Midnight
Thank you, sir. That's one thing I didn't think about was a business license. I'll check on that ASAP.
I will be working from home as well as traveling, it just depends on the clients and what their needs are.
I appreciate the input!!
I will be working from home as well as traveling, it just depends on the clients and what their needs are.
I appreciate the input!!
Posted on 5/11/16 at 4:11 pm to CajunInFL
I'd probably work for myself for the same pay or even slightly less, but how much of a pay difference are you looking at?
I would immediately meet with a good CPA and pay for an hour or 2 of consultation on your expected taxes before you quit your current job. Don't forget about CPA expenses, travel expenses, SS and Medicaid taxes, etc.
You are going to need to make at least I'd say 25% more to break even with your current salary. But its still way way worth it to work for yourself, unless you are Beta as frick.
I would immediately meet with a good CPA and pay for an hour or 2 of consultation on your expected taxes before you quit your current job. Don't forget about CPA expenses, travel expenses, SS and Medicaid taxes, etc.
You are going to need to make at least I'd say 25% more to break even with your current salary. But its still way way worth it to work for yourself, unless you are Beta as frick.
Posted on 5/11/16 at 5:53 pm to baldona
100% increase in pay. Travel is paid for by clients.
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