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1099 subcontractor
Posted on 7/19/11 at 12:21 am
Posted on 7/19/11 at 12:21 am
So a relative of mine just landed a gig as a 1099 subcontractor. He's been out of work so he was willing to accept. He's worried about handling taxes and insurance himself.
I suggested forming a sole propriatorship or LLC, then pay standard employer tax and pick up benefits as the LLC, then pay himself as a standard employee with normal payroll deductions. I also suggested he could look into subbing out the payrol/benefits through various local companies most of whom charge 15 per employee per month once you set everything up with them. I figured he could also push some of his expenses up to the LLC and write them off.
Was this solid advice? Or should he just take the checks, pay his taxes quarterly, and pick up a high deductible health insurance policy?
I suggested forming a sole propriatorship or LLC, then pay standard employer tax and pick up benefits as the LLC, then pay himself as a standard employee with normal payroll deductions. I also suggested he could look into subbing out the payrol/benefits through various local companies most of whom charge 15 per employee per month once you set everything up with them. I figured he could also push some of his expenses up to the LLC and write them off.
Was this solid advice? Or should he just take the checks, pay his taxes quarterly, and pick up a high deductible health insurance policy?
4
Posted on 7/19/11 at 12:28 am to LSUStjames
LLC is good for liability and good advice but a sub chapter s is what he needs if he wishes to be an employee of the corporation. It could save him some on the self employment tax. It may not be worth it as a lot will depend on how much he wil make.
Best advice is to consult a CPA.
Best advice is to consult a CPA.
This post was edited on 7/19/11 at 12:30 am
Posted on 7/19/11 at 1:09 am to MoreOrLes
Yep, best to talk to to a CPA. The advice sounds solid though. 
Posted on 7/19/11 at 8:14 am to LSUStjames
Your relative does not need to from a sole proprietorship. He is one as the income will have to be reported on Schedule C. And he cannot hire himself as an employee.
The same applies if he forms a single-member LLC. The IRS considers it a sole proprietorship unless the owner elects to be taxed as a corporation. Owners of LLCs are also not employees of the company just like partners are not employees of partnerships.
The primary purpose for forming an LLC is for asset protection. Have your relative talk to an attorney or CPA about these matters. YOur relative may not even meet the qualifications for being a subcontractor, and may in fact be an employee.
The same applies if he forms a single-member LLC. The IRS considers it a sole proprietorship unless the owner elects to be taxed as a corporation. Owners of LLCs are also not employees of the company just like partners are not employees of partnerships.
The primary purpose for forming an LLC is for asset protection. Have your relative talk to an attorney or CPA about these matters. YOur relative may not even meet the qualifications for being a subcontractor, and may in fact be an employee.
Posted on 7/19/11 at 9:27 am to Poodlebrain
Does he happen to work for Sparkhound?
Posted on 7/19/11 at 12:51 pm to LSUStjames
quote:
Or should he just take the checks, pay his taxes quarterly, and pick up a high deductible health insurance policy?
this
Posted on 7/19/11 at 7:20 pm to rmc
Please provide examples of this happening in Louisiana and elsewhere.
Posted on 7/19/11 at 8:35 pm to rmc
Wow, two cases and no facts giving cause for piercing the veil. If an owner is foolish and fails to exhibit comon sense, then he doesn't deserve protection. But how hard is it to open a separate bank account and keep LLC assets at the LLC's place of business?
How often have the courts recognized and upheld the proections for single member LLC's?
How often have the courts recognized and upheld the proections for single member LLC's?
Posted on 7/19/11 at 8:44 pm to LSUStjames
quote:
I suggested forming a sole propriatorship or LLC, then pay standard employer tax and pick up benefits as the LLC, then pay himself as a standard employee with normal payroll deductions. I also suggested he could look into subbing out the payrol/benefits through various local companies most of whom charge 15 per employee per month once you set everything up with them. I figured he could also push some of his expenses up to the LLC and write them off.
Bad suggestion, IMO.
Posted on 7/19/11 at 10:56 pm to rmc
You're not going to find many, if any, cases in Louisiana or Texas where a court pierced the corporate/LLC veil where there was not also a finding of intent to commit fraud or to defraud creditors, usually evidenced by commingling of funds, undercapitalization and other bad factors.
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