Time for another exciting episode of "Ask LJ!"

[tcepsa]

I've recently been contacted about a job opportunity that seems to have a lot of potential in it. However, to get involved with it I would probably need to become an independent contractor. This is a rather daunting prospect to me, because it carries with it so many unknowns (and some of the things that I do know are pretty daunting as well ;) I'm trying to figure out whether it would be a good fit for me, what kind of a pay raise I'd actually be getting in terms of money that would go into my pocket instead of Uncle Sam's, and overall whether the stresses involved would outweigh the benefits.

So my questions are along the lines of...

How different are the taxes (i.e. is the tax rate the same and I just have to make sure I do my withholdings right myself, or will I be taxed differently simply by virtue of being self-employed)?

Would I need to start my own business (Tcepsa's Troubleshooting, Inc.) or can I just jump in and do it?

Any recommendations of good lawyers (or whomever it is that people go to for help with stuff like this)?

Any other pieces of advice for someone considering this route?

Comments

[fortryll.livejournal.com]

Seriously, talk to Daddy. He's handled the tax side of things for plenty of his clients, as well as himself. He'll be here next week.

[ivorydamsel.livejournal.com]

You will have to pay your own Social Security (i.e., the "self-employment tax"), so you will be taxed more. To be honest, self-employed people should really put 50 percent into savings just to handle the total tax bite -- and, yes, it does bite.

You should also pay your estimated total tax on a quarterly basis, which is also a pain (but better than coughing up X-thousands of dollars at the end of the year!).

Not to mention that you have to pay for your own health insurance and any other benefits that you currently have as an employee (even going on COBRA will cost much more than you're currently paying, and your eligibility for that ends after 18 to 24 months, depending on circumstances, after which you'd have to find and purchase individual coverage, which is NOT easy and even pricier).

Just sayin'.

You have to know yourself and be incredibly disciplined about money. I'm not. To be honest, I wouldn't go back to being a freelancer/contractor, if I could help it, unless I were on a long-term contract paying me at least twice what I'm making now. And I am still in hock to the IRS.

[grum]

Actually, individual coverage varies in difficulty to find (it's not that hard as a young, healthy person with no/minimal pre-existing conditions) and mine, at least is significantly cheaper than COBRA.

[ivorydamsel.livejournal.com]

Perhaps. Although even when I was young and healthy with minimal pre-existing conditions (no longer the case), I was rejected for (a) having a one-night hospital stay for asthmatic complications from a cold two years prior or (b) being overweight (about 200 lbs. at 5'5"). In each case, that was the sole reason cited.

Reasonably priced individual coverage also typically requires such a high deductible that I, for one, would probably avoid getting health care even if I needed it. Catastrophic coverage might be better than no coverage but not much.

If one does have any chronic or pre-existing conditions, individual coverage will be far more expensive than COBRA, i.e., prohibitive. For me, a 10-year cancer survivor, it would be $800+ a month.

It just depends, of course, but I know plenty of people making more than $50K as contractors who feel they cannot afford their own health insurance.

[elkor.livejournal.com]

The forms you want are the IRS forms 1099, for independant incole. You could probably also do it under a Schedule C.

How different are the taxes

Federal and State taxes are the same. You will need to pay both parts of your Social Security tax (take what your current SStax is and double it). You'll also need to pay your taxes quarterly yourself (I think), as opposed to just making sure you have enough at the end.

Get quotes for health insurance. Often HI is discounted through your employer.

Any other pieces of advice for someone considering this route?

Get an accountant to handle the paperwork, withholdings, etc for you for at least the first year. Once it is set up, it can be pretty easy to carry through and keep it going, but you don't want to screw up setting it up.

[tcepsa.livejournal.com]

Get quotes for health insurance. Often HI is discounted through your employer.

As in, "Employees generally have to pay less for health insurance than contractors because they get a discount through their employer" or as in, "Even as a contractor, you may be able to get a discount on health insurance through the company with whom you are contracting"?

[elkor.livejournal.com]

Having not been a contractor, I don't know.

[grail76.livejournal.com]

Double what you make as an independent contractor. You'll have to pay for health insurance and your own taxes. If they want to pay you less than say 1.75 what you make per hour, then it really better be one helluva learning experience.