Need self-incorporation crash-course

[widebody911]

I've found a new opportunity, but it would be as an independent contractor, as opposed to W2. This is uncharted territory for me.

I did some googling, but all I've found so far are outfits that want me to give them some money to make things work.

I have a draft of the contract, and it states Corporation shall not be liable for any withholding tax, social security taxes, workmen's comp or other expense liability attributable to employer/employee relationship.

I have no clue about how to handle the tax and accounting end of things, and I've heard that people have gotten themselves in trouble this way.

Where do I start? Is there a definitive FAQ or checklist for this? They want me to start on Tuesday.

[Moses]

Thom, get Quickbooks Pro. It's all there. I've been doing this stuff for years. It's easy. If the opportunity otherwise sounds good to you, I wouldn't let the Independent Contractor thing stop you.

Things to remember; You will need to budget for health and disability insurance as well as retirement plans. When you leave the corporate nest, you become your own HR department.

[bryanthompson]

and you'll realize how much money you spend on taxes and hopefully become a republican

[BlueSkyJaunte]

Yeah, but if he doesn't incorporate, he can't advertise as "Thominator, Inc."

[mede8er]

There are a few advantages to an LLC.........

[LeeH]

If you decide that you do need to be incorporated, there's a series of books that take you through it step by step. I've created two corporations using these books. So far so good. I'm sure no attorney would recommend it.

http://www.amazon.com/exec/obidos/tg/detail/-/0873374770/qid=1108693258/sr=8-2/ref=sr_8_xs_ap_i2_xgl14/103-9712196-2164654?v=glance&s=books&n=507846

[VincentVega]

I would suggest talking to a good tax accountant. If you incorporate you can basically pay all your expenses before paying tax, compared to paying tax then your expenses. I'm not a pro, but have been reading a lot lately and am curious about this myself. Ideally, the corporation owns everything and you just draw a paycheck. Since a lot of your expenses are covered by the corp. you end up paying little personal tax.

[qikcpa]

Just showing up makes you a sole-proprietor subject to both halves of social security and medicare on your profit (revenue less expenses). Depending on the type of work, you may have a slew of expenses against your income both out of pocket and non-cash (like mileage). Keep in mind social security has a cap. If you reach the cap through other W-2 income you wont have to pay on your self employed income. Keep in mind this is on top of your income tax.

Incorporating has a sweet spot as far as tax benefit goes. I usually advise that you need to be making 10-15k profit before you see any real advantage to being a corp. you wind up paying more to your accountant to keep up with the additional corp paperwork than it saves you if you only make say 5K. (keep in mind im talking profit).

If you do go corp. get a name thats generic enough to let you operate in various fields without having to file a bunch of d/b/a's.

If this is a one time or short term deal i'd keep your life simple and stick with being a sole proprietor. If your looking long term at being in business the s-corp is (in my experience) the best way to go. Either keep track of all of your expenses.

[Moses]

Widebody Inc.

An I.T. and race fabrication company.

Hmmm...All car expenses become tax deductable...Hmm...

[ronin]

Originally posted by bryanthompson
and you'll realize how much money you spend on taxes and hopefully become a republican

he wouldn't be the first and definitely not the last!

[campbellcj]

I would echo the above advice to seek professional advice from a CPA and/or tax attorney. This is a complex topic with many variables and mistakes can be very costly. A couple of Ben Franklins is well worth it, just like getting a PPI on a Porsche purchase...

Even if you start work as an independent on a 1099 basis, there should be no reason you couldn't later incorporate under subchapter S or as an LLC if you found out it made sense. As far as the employer is concerned, paying a sole proprietor vs. a "company" would be a wash in my experience as both will very likely be deductions under the same expense line item/account.

[RickM]

Ditto on the pro consultation. While you can read up and get the drift on lots of the structure you can't possibly match the experience of a good CPA and Attorney. Let them at least get you started then you can shed there oversite or use them ocasionally to audit things.

The quickbooks or MS Money idea is great as well.

Are you going to be a software/technology based contractor? If so, many (med large) corps insist on using there paper when bringing outside resources in. Smaller companies may rely on you having an agreement.

[einreb]

Here's a link to an IRS page that discusses this...

http://www.irs.gov/faqs/faq4-3.html

I started as a sole proprietor and recently made the switch to an S Corp.

The above posts are correct in that you can work as a subcontractor without 'incorporating'. You'll need to file quarterly to pay the expected taxes if it’s going to be a 'decent' amount of money.

If you are going to be the only employee of your company, there are a couple of things that you may want to keep in mind with regards to incorporating (as I understand it).

Sole proprietor... you will pay ssn and Medicare taxes on all your ‘income’ i.e. if you make $100k, you will pay taxes on the full amount. If you incorporate... your accountant might suggest that you pay yourself a 'salary' of $60 (and you pay ssn and Medicare taxes on that) and the rest of your income is paid as a dividend.

you can also have better tax deferred options as a corp. (i.e. 401k rather than a SEP IRA).

If you 'self incorporate'... you really need to keep up with the annual meeting minutes, cross the 'i's and dot the t's otherwise when/if you get sued the prosecution will be able to tag you as a sole proprietor (and go after personal assets).

I Am Not A Lawyer! and I would guess that a lawyer would find mistakes in what I've posted.

[Porsche-O-Phile]

Originally posted by bryanthompson
and you'll realize how much money you spend on taxes and hopefully become a republican

And grow a mullet, buy a pickup truck, stop brushing your teeth and see nothing wrong with tax dollars to go invade and kill the citizens of third-world countries that pose no threat to the U.S. - taxes for bombs is fine you know; taxes for needy people in our OWN country isn't. Jesus hates poor people you know.

[lendaddy]

Originally posted by Porsche-O-Phile
And grow a mullet, buy a pickup truck, stop brushing your teeth and see nothing wrong with tax dollars to go invade and kill the citizens of third-world countries that pose no threat to the U.S. - taxes for bombs is fine you know; taxes for needy people in our OWN country isn't. Jesus hates poor people you know.

You're soooo cute when you're angry

Anyway....
A common quote to your accountant in this situation is........"What do you mean I was only paying half the tax when I was an employee?"

Enjoy

[ronin]

Originally posted by Porsche-O-Phile
And grow a mullet, buy a pickup truck, stop brushing your teet...

lmao! (no, really) irony here is that you are laboring under the false perception that people like this are all "conservatives". you obviously haven't been to any "Hillary for Queen of the World" rallies or-the-like lately. funny thing is, most of 'em are packin' vaginas