Contract employee or Consulting bussiness

[ovs8]

Hi there,

The company I used to work for full time offers me a few hours a week of net. admin work. They don't care whether I come in as a contract employee or do a consulting business for them.

I'm not sure how different is one from the other. Are there any tax issues to be considered? Anythign else?

Thanks a lot.
oleg

 

[MDXer]

Tax issues depend on Location and how the contract maybe written. In the U.S. if you do 1099 Contract work then you are responsible for all taxes including like 15% Social Security. if you can get a w-2 Contract or Consulting then you maybe able to pass off tax responsibilty to them. The 1099 route definately should demad a larger pay since you have to cover all taxes yourself.

Shoot Me! Shoot Me NOW!!!
- Daffy Duck

 

[lespaul]

A contract employee is allowed to be paid $600 per year and not require a 1099. If you are issued a 1099 for contract work then you will have to pay both 1/2 of SS and Medicare (total 15.6%), but you get a credit on your taxes (self employment tax credit) of the 1/2 that your employer would have paid for you. So you still have to pay the tax, but you get a non-refundable credit.

If you decide to start your own business (consultant) then depending on how you set up your "company" (sole propreitor or S-Corp) then you may get a tax break.

A W-2 contract means that you don't work for the company, but they pay your federal & state taxes PLUS they will still have to pay the employer's 1/2 of SS and Medicare.

A W-2 contract is probably the best way to go if you aren't going to be doing consulting with any other companies at this time.

Leslie

Anything worth doing is a lot more difficult than it's worth - Unknown Induhvidual

 

[chiph]

I'm currently a W-2 Contractor, and I'd like to be a 1099 (company doesn't want to go that route). As a 1099 I can deduct business-related expenses .... for example, I just bought a new laptop. As a 1099 I could depreciate it over a few years. Same thing with a MSDN Universal subscription. As a W-2, it's just money spent.

That being said, a 1099 has higher paperwork costs -- you need to file quarterly with the IRS and make estimated tax payments. You should speak with an accountant to determine which would be best for you.

Chip H.


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[MDXer]

I believe you can as a W2 I was a W2 for a year a while ago and was required to travel and pay my own expenses. I claimed all my business related expenses. I met with a CPA before I Began the work and was told that as long as I could prove I was required to provide my own equipment and pay my own expenses it was deductible. I was thankful because that year expenses were in the are f 30K, also that was the year you could claim computers and other high ticket items 100% the first year rather than depreciate.

Shoot Me! Shoot Me NOW!!!
- Daffy Duck

 

[lespaul]

there are benefits and tradeoffs to any of the situations. Do you do work for any other companies? Just because this one company pays you as a W-2 contractor doesn't mean that you can't also have a "business" on the side where you can still deduct the business expense. Perhaps your newly created business doesn't have any contracts yet so you don't have any income to report, but you still have the capital outlay of the lap top and the MSDN subscription.

The tax accountant I used to work for had a motto:

"If you get audited and don't have to pay, you didn't play the game right."

 

[kHz]

The best advice to answer this question would be from a tax accountant or tax attorney.

 

[ovs8]

Well, I guess I have to talk an accountant. I was hoping that there would be a more simple answer to that.
Looks like for now I will go W2. I'm going to use my own equipment there and will make sure that my contract specifically says that.

Thanks