how to set up consultant business

[bookouri]

I recently retired, and the company i used to work for now wants me to come back to work and bill them by the hour. They will be sending me a 1099-misc at the end of the year. I dont have any idea where to start to set myself up as a "consultant" business. How do I know what I can track as expenses? How do i handle income taxes? Working out of my home office? I tried to do some research but there's too much stuff out there to wade through. Can anybody point me to any resources that are basic enough for somebody who doesnt have a clue?

any help would be appreciated.

 

[bookouri]

i apologize in advance if Im posting in the wrong area.

 

[ecobb]

Every State/Country has different laws regarding this, you should consult an Attorney and an Accountant in your area. Only these professionals are going to be able to help you sufficiently.

Hope This Helps!

ECAR
ECAR Technologies

http://www.ecartech.com

"My work is a game, a very serious game." - M.C. Escher

 

[gbaughma]

If they are going to 1099 you, make sure that you keep track of your expenses (mileage and so forth). When you do your taxes (I always use a tax person, just for this very reason), I take the 1099 in with the rest of my paperwork, and my records of expenses.

Additionally, if you're working as a consultant, you may be able to write off other business expenses, such as:
* a percentage of your house payment, utilities, and so forth, if you have established an office area in your home.
* a second phone line
* internet service fees (if it's used in your business; mine is)

A 1099 is essentially a statement of earnings; they will *not* be taking taxes out. You will need to pay those; that's why you need to keep track of expenses as well.

Keep in mind that when you are negotiating your fees for consulting, the following:
1) They're not taking out taxes, you will be responsible for those. Adjust your rates accordingly.
2) They're also not paying for your insurance, worker's comp, etc. etc.
3) They're not "required" to keep you. If they don't like you for some reason, or you tick someone off, you have no grievance process, etc. They are now your customer, and they have the right to take their business elsewhere.

I consult for a few businesses. They 1099 me every year. But, I have enough expenses that I can write off (in addition to claiming "0" on my regular job so they withhold as much as possible) that I don't get stuck paying taxes at the end of the year.

Take your taxes to a tax person. When you start dealing with 1099's and other things, it's well worth the $125 to go to H&R Block. They know what you can write off, what you can't, what percentage, etc.



Just my 2¢
"Life gets mighty precious when there's less of it to waste." -Bonnie Raitt "Nick of Time"
--Greg

http://parallel.tzo.com

 

[bookouri]

Thanks, those expense type things exactly the things I dont know about. I can understand the basic, they give me money and i count it as income stuff. Its trying to figure out the basic stuff i can count as expenses where Im lost, mostly. Since I'm not planning to really actively seeking other "employers" I was hoping to avoid having to find a tax person. Ive never had to have anybody to do my taxes before. So, if Im going to keep records of my expenses and take them to a tax person, where can i get some idea of what expenses i need to keep records of? Is there some publication/faq somewhere that would give me some idea what to count and what not?

thanks again

 

[RCorrigan]

Although this based on the British Point of view here might give a starting point.

<Do I need A Signature or will an X do?>

 

[dkediger]

I would just bite the bullet and consult a regular tax CPA.

When considering deducting home based business expenses, particularly space for a home office, there will be implications when you sell that house.

There will probably be a local Small Business Administration (SBA) office in your town/city. They could give you a good starting point in finding information. If you can't find them via web/Google or the phone book, ask at your local Chamber of Commerce.

 

[bookouri]

I took a look at the sba's and even the irs's references online, but they're all way over my head so far. The UK stuff suggested above is more along the lines of what I can understand so far, if I could just find something like that for the US environment.

i'll probably have to resort to a tax person in the end, it seems like its not going to be as much of a no-brainer as I had hoped, but I still want to understand as much about the whole process as i can.

 

[dgillz]

Its not a no-brainer, but it is not brain surgery either.

Basically, you can write off any expense you incur that is directly related to running your business. Phone, ISP service, postage, office supplies, software purchases, etc.

As gbaughma indicates, even a % of expenses that are not 100% business related may be written off.


Software Sales, Training, Implementation and Support for Macola, eSynergy, and Crystal Reports

http://www.gainfocus.biz

"A fine is a tax for doing wrong. A tax is a fine for doing well.
" - unknown

 

[LWComputingMVP]

First, I'd avoid H&R Block. I used them one year... They left off so many deductions it wasn't funny. Hire a good CPA (ask around).

In GENERAL, you can deduct as expenses anything you need to do your job (some exceptions such as non-uniform clothes exist). Do you need to take the train to work? Then that train ticket is deductible. As is the parking fee and the miles to and from the train station and your home. The newspaper and your morning coffee is not a requirement of getting the job done (I know some caffeine addicts may feel differently, but the IRS doesn't). Unless you buy a car that specifically an explicitly only use when working as a consultant, then you CANNOT deduct your gas and maintenance, but you will be able to claim a 48.5 cent per mile (last I checked, that was the rate) deduction for every mile driven getting you to and from your consulting engagements or while performing your job as a consultant and using your own car.

Deducting a portion of your house/rent/mortgage CAN be done, but it's also subject to strict rules. As I understand it, if you do ANYTHING other than work in that space, then the home office is NOT deductible. But if it's used EXCLUSIVELY for work, then it is (I've also been told this can be a red flag for auditing and you might just prefer to pay the tax).

Your taxes will be higher. Sort of. Social Security and Medicare are split with you and your employer each paying roughly 6.5% when you are an employee. When you're a consultant, you are also the employer, so these taxes will essentially double (though a PORTION will be allowed to be written off as an expense). And of course, getting a CPA and the Attorney are also deductible - you wouldn't be getting them if you didn't have the 1099 consulting gig, right?

Lastly, I was told, early on, that if you don't show a profit within 3 years, then it's no longer a valid consulting gig - it's a "hobby" and many of the deductions won't be allowed (this I could be wrong about; I've made enough consulting each of the last 8 years that I've shown a profit in each one).

Really, as everyone else said, talk to professionals in your area.