The confusing world of self-employment... 5

[rpearson]

I recently quit my job working for "someone else" to pursue self-employment, and will eventually become Incorporated. Yeah, its a scary endevour...

I am currently working as a Independent Contractor for 2 companies that love my work, and pay me 3 times as much working for Joe Blow. I find the Tax thing so confusing I dont know exactly where to start. I do have liability insurance, that one of my customers require. But back to the Tax thing, Im getting so much info from so many angles.I realize it depends on the state your in,etc.My next goal is to become Incorporated, and go full out. All this just seems overwhelming. I think its my duty as an American to not give up, and succeed.

Any Suggestions , Tips, or Valuable Insight, Please!

Thanks in Advance

 

[sleipnir214]

It's simple, really:[ol][li]Obtain the advice of a CPA or tax accountant who is experienced in setting up corporations and handling taxation.[/li][li]Implement that advice[/li][/ol]




Want the best answers? Ask the best questions!

TANSTAAFL!!

 

[chiph]

I second sleipnir214's advice. You need the services of a good accountant.

Chip H.


____________________________________________________________________
If you want to get the best response to a question, please read FAQ222-2244 first

 

[chiph]

Also -- You *have* been making your quarterly payments to the IRS, haven't you?

Chip H.


____________________________________________________________________
If you want to get the best response to a question, please read FAQ222-2244 first

 

[rpearson]

Well Ive only been an IC for about a month as of Monday.Ill call a CPA tommorrow.

Thanks Guys!

 

[lespaul]

Some things to consider:

1. You will get a 1099 from the two business that you are currently working for. This income will be included on your taxes and you WILL have to pay 15.3% of it to both the employer and employee sides of Social Security and Medicare. Most people don't realize that the SS and Medicare that is deducted from the paycheck is only 1/2 the payment, the employer pays the other half. As a self employed entity, you pay both halves.

2. If you drive to the locations, be sure to keep a log of the starting mileage and ending mileage for any traveling done in your personal vehicle for business purposes. You can also deduct a portion of any vehicle maintenance (car washes, oil changes, repairs, etc). The deduction will work out to a percentage equivalent to the business use of the vehicle.

3. If you do work at home, be sure to follow the guidelines for expensing the mortgage interest/rent.

4. Be sure to depreciate any capital expenses over $1000 and expense anything under $1000 (that's just a general guideline - but you should pick an amount, most accountants will stay with the $1000)

5. On the books, you never want the business to be profitable (unless you are looking for outside investments) one of the main advantages of having a Sole Proprietor or S Corp business is to reduce your personal tax base. (S Corp is an IRS classification that allows a single owner business to continue acting as a Sole Proprietor for fund distribution, but be incorporated for liability protection)

Here's some helpful links:
'IRS Starting a Business'
'Should I Incorporate?'





Leslie

 

[JeremyNYC]

The biggest piece of advice I have for you is to be less concerned about whether your tax preparer is a CPA (lots of people do this work w/o being certified, and do great work), and more concerned with whether or not the person is good. Talk to people who use accountants. Find people who are really happy with the person they use. Interview a couple of these folks. Find one you're comfortable with. Use that person.

And, if you're in NYC, I have a great tax preparer to recommend...

---
Jeremy Wallace
METRIX Project Coordinator
Fund for the City of New York

 

[GoTellBigDaddy]

cablepuller-

just by your username I'd say this:

get your butt in gear and do as these folks mentioned, talked to a CPA and then implement what you find.

You may be young (whatever that means) but your body will get old and if you're pulling cables for a living you know what will come:

- oh the leg pains come first,
- next, the knees begin,
- then the groan in the mornin's, just getting outta bed.


So- iffn you are a cable puller then get uncomplicated and get a firm grasp on this. Your body won't go on forever and have some plans in place for rainy days and days when the going gets tough.

Also think about diversification, and applying your skills (I am assuming CABLING. You mentioned duty... duty has nothing to do with being successful in America. If your business plan is myopic then you won't last, the statistics say so. So- get a plan, get diversified, and get some experts on your side. They will pick your pocket but then that's another thing. Whatever it is you do, find other ways to do it, and always find ways for improvement and never settle for complacency. Know your limitations and yet, don't be afraid to take risks, learn to calculate those risks.

If you are as I mentioned a "cable puller" and have this much enthusiasim for pulling cable, GOD BLESS YOU. My body is worn down from work like this.

BTW- post what state you're in, if you don't mind.

Go get em !


The older I get, the less I know

 

[rpearson]

Wisconsin.

 

[GoTellBigDaddy]

Consider

http://www.bicsi.org

and getting RCDD, it's worth looking into for your future.

Also, look at some fiber opportunities whenever you can.

Visit and get inclusions for your business:

http://www.cablingbusiness.com/

http://cim.pennnet.com/home.cfm

Others mentioned finance, tax, etc...

Okay:

1. Max out your SEP/Simple IRA.

2. After you max out these then consider paying into a ROTH/ITA

again- seek council from your CPA/FP, etc....

3. Keep in mind- cover your A-S-S-E-T-S and protect them. You need to hone in on protecting what you earn (legally) and building your business and personal wealth.

4. Learn about the RED FLAGS in taxes.


The older I get, the less I know

 

[GoddessOfTech]

I am in Wisconsin as well. I started my company from a friend's office when I was homeless in 1998. (too experienced to employ)

I now have 4 employees and we are opening a second location in December...bah...interview time!

Anyways... Always, always, always...seek advice from professionals that make it their business to know what you need to know. That is, like people have already said...talk to other small business owners and find a reasonable and reliable accountant and if needed a reasonable and reliable attorney. SCORE

http://www.score.org/

can help you with both of these and they also offer free legal advice from licensed attorneys. Plus other business services...they are an excellent resource!!!!!!


I was going to do much like you and become a corporation. However, after talking to a few attorney's and my accountant I have decided to stay sole proprietor for now. If you are looking to become a corporation to try to get around legal stuff (like being sued)...it doesn't really work that way if you are the only stockholder. The IRS or anyone for that matter can pierce the corp to get at your assets.

As far as you and taxes and all (I am no accountant, please get one) but I do believe that if you are simply running as an I9 independent contractor, that you do not have to do quarterly taxes unless you choose to...however it is wise to do otherwise you are going to end up owing a lot of money at the end of the year.

Someone mentioned writing down mileage and all that...YES!!! YES!!! YES!!! and any accountant will tell you that as well. You will need many MANY many ...as many as you can get...deductions. Especially if you are mainly selling services, because you have almost no expenses so this is very important...unless you run some retail, even if you are allowed by law to claim a loss for the first four or five years...you might not be able to.

I found that out the hard way

Deductions are the name of the game.

=================================
"It's become appallingly clear that our technology has surpassed our humanity." --Albert Einstein

 

[iknowitall]

How can a sole proprietorship reduce your "personal tax base" when that income is included as personal income?

 

[chiph]

It allows you to make deductions for buying stuff for business uses.

For example: Ever wonder who is buying those huge Hummer H2 trucks? It's small business people, as the lease on SUVs over 6000 lbs gvwr can be deductable (according to the percentage for which it is used for business use).

A few years ago I was able to deduct the cost of a laptop under an accelerated schedule, which cut $2000 from my income that year (which I really needed, having received severence and accrued vacation pay from being laid off).

You'll need to speak with your accountant for the details, as they change every so often.

Chip H.


____________________________________________________________________
If you want to get the best response to a question, please read FAQ222-2244 first

 

[GoddessOfTech]

Yes just like chiph says...let's say this year you make 25,000 in retail sales and 50,000 in service fees. Service fees you do not charge tax on let's say. So right now...you owe sales tax on 25,000, use tax on 50,000 and personal income tax on 75,000. Federal and state.

So. In order to reduce your income tax you need business deductions, Software/hardware you buy for business, insurance (some insurance you can claim some you cannot), supplies, office furniture, shelving,rent, utilities, vehicle, gasoline and maintenance, mileage, etc. The more deductions (business expenses)you have, the more you reduce your tax because you put that money into the business as an investment.

Sole proprietors can also deduct medical bills not covered by insurance.

This is another big reason why larger corporations will have their largest capital expenditures from October to December.

Not because they are sole proprietors but it reduces their tax liability.

GoTellBigDaddy has a good point as well.

Find a financial specialist and look into an IRA (Individual Retirement Account) or something similar. Sole proprietors do not pay into social security like you did when you were on the paycheck at mc donalds. If you don't start one now, chances are you won't be able to afford to and also afford not to later. Better to start early with smaller payments.

A sole proprietor also should look into accident insurance that pays for loss of work. This means that say you are sick for a week with the flu. If you are a one man/woman operation this is going to cut into your income pretty good. Find something that pays out in addition to any other insurance plus will pay you so much per day out of work.

I have an advantage in the health insurance since I am a single mother I still qualify for some state health insurance without having to pay in. Which will change next year to a copay system since I make more money now. Any of you who are married with a kid or who are single fathers may also qualify for this help if your state offers it. It is worth looking into.

=================================
"It's become appallingly clear that our technology has surpassed our humanity." --Albert Einstein