1099 Independent Contractor

[RoyJackson]

I've been offered a job as an independent contractor. Although I've done a fair amount of contract work over the years, I was always an employee (for payroll and tax purposes) of the agency.
This will be my first time as an independent. I'm doing some research (online) but would also like some experiences of folks who have done this kind of work.
Although the rate (hourly) is quite good, if the added expenses/taxes of being "independent" cut into the gross too much, it won't be a worthwhile endeavor for me.

So, any of you guys ever worked as a 1099 contractor?
If so, what are the pitfalls? The advantages?
A little more info: my work schedule would be set by the agency which, in turn, is contracted to the client.

 

[brin]

I've been offered a job as an independent contractor. Although I've done a fair amount of contract work over the years, I was always an employee (for payroll and tax purposes) of the agency.
This will be my first time as an independent. I'm doing some research (online) but would also like some experiences of folks who have done this kind of work.
Although the rate (hourly) is quite good, if the added expenses/taxes of being "independent" cut into the gross too much, it won't be a worthwhile endeavor for me.

So, any of you guys ever worked as a 1099 contractor?
If so, what are the pitfalls? The advantages?
A little more info: my work schedule would be set by the agency which, in turn, is contracted to the client.

Roy...see if the company or person hiring you minds paying your Subchaper S corporation instead of you personally...With a Sub S corp. you are able to write off expenses against whatever you are paid and only pay taxes on the bottom line by filing a K-1 form instead of a schedule C...you can set a salary for yourself and only that salary is subject to Social Security...the balance of the profit you would pay at a lower rate since it would be return on investment . I am not an accountant so check with yours or Google ...sub S corporation...there is a workaround to just being an independent contractor.

 

[RoyJackson]

Roy...see if the company or person hiring you minds paying your Subchaper S corporation instead of you personally...With a Sub S corp. you are able to write off expenses against whatever you are paid and only pay taxes on the bottom line by filing a K-1 form instead of a schedule C...you can set a salary for yourself and only that salary is subject to Social Security...the balance of the profit you would pay at a lower rate since it would be return on investment . I am not an accountant so check with yours or Google ...sub S corporation...there is a workaround to just being an independent contractor.

Thanks for the post!! I thought about an S corporation a while back, but my agency wasn't willing to go that route (I had to be an employee). Definitely something I want to research and consider.

 

[murphy1244]

You will have to pay quaterly and pay double the usual SS tax. I think you would be a K-1 employee IHHO.You would also pre pay city and state taxes.

 

[RoyJackson]

You will have to pay quaterly and pay double the usual SS tax. I think you would be a K-1 employee IHHO.You would also pre pay city and state taxes.

I already knew about the taxes.
I'm not familar with the term K-1 employee. Care to elaborate?

 

[brin]

I already knew about the taxes.
I'm not familar with the term K-1 employee. Care to elaborate?

Roy - K-1 is a form that you file if you are taking profit as a dividend from your Sub S corporation...so as an independent contractor you would be like a sole proprietorship...you would file a Schedule C and list all your work related expenses and you would pay both sides of Social Security as I remember but again, I am not an accountant but I have been through this for my own account. Sub S Corp . is the way to go if you can get them to agree...otherwise just list out " all " of your expenses on the schedule C...

 

[RoyJackson]

Roy - K-1 is a form that you file if you are taking profit as a dividend from your Sub S corporation...so as an independent contractor you would be like a sole proprietorship...you would file a Schedule C and list all your work related expenses and you would pay both sides of Social Security as I remember but again, I am not an accountant but I have been through this for my own account. Sub S Corp . is the way to go if you can get them to agree...otherwise just list out " all " of your expenses on the schedule C...

Since this position will require travel (mostly within PA), can a personal vehicle be depreciated?
I'm aware I'll need to talk to an accountant. I just want other folks' experience to determine if this is a viable opportunity (meaning I can make money at it).
I cannot name the company or it's client...but I have had contact with other (of the company's) independent contractors. Seems like many were retired folks supplementing their retirement.
What I'm looking at would be more then 30 hours (and likely more then 40 hours) per week.

 

[brin]

Since this position will require travel (mostly within PA), can a personal vehicle be depreciated?
I'm aware I'll need to talk to an accountant. I just want other folks' experience to determine if this is a viable opportunity (meaning I can make money at it).
I cannot name the company or it's client...but I have had contact with other (of the company's) independent contractors. Seems like many were retired folks supplementing their retirement.
What I'm looking at would be more then 30 hours (and likely more then 40 hours) per week.

Roy you can take mileage and it is pretty generous now I think...check it out and remember you can deduct " all " of your expenses on that schedule C...just keep track of all of your receipts...you would be surprised how many things are a business expense.

 

[Brant]

I work as a "1099 contractor" and practice law and have done so for years. It is more expensive tax-wise for sure. I feel that as a contractor you should be paid at least twice your comparable hourly rate as an employee. Being a contractor has substantial risks and costs and you should be paid for them. Also the fact that someone else will set your schedule is questionable. There are legal tests for contractor vs. employee and this is a consideration. Many companies abuse the distinction to their advantage. I strongly recommend that if you want to proceed you set up an LLC for yourself. I set up PA LLCs for people--cost usually around $500 including state fees. You can do it yourself with some research for less but you take more risk.

 

[Ron JD670]

Roy
I agree with Brandt on the LLC and compensation. As a registered advisor I must prequalify I am not giving legal or tax advise. I suggest finding a tax person to consult with. I look for one that will defend you in an audit rather than keep you out of one. The latter may be to conservative. Pick up quick books to log expenses and income and a copy of Tax Savvy for Small Business (originally from NOLO press). This does a great job to provide a good overview of the business types. There are book keepers that can set up quick books for your business in a couple hours. But, since you own a tractor you may want to figure that out on your own (lol).

One final note look into the auto expensing carefully once you start one way you can't change on that vehicle. Also, there are some tax traps when you buy/sell or put an exiting vehicle into service.
Ron JD670
Chartered Financial Consultant. ChFC

 

[randy41]

if you get a 1099 then you will file a schedule c with your tax return along with sched SE. there are many advantages to getting a 1099. you can write-off business expenses directly against your 1099 income instead of taking an itemized deduction for employee business expenses.
i think some simple math will tell you if you can make money at it. the tax consequence shouldn't be the deciding factor.

 

[Hooked_on_HP]

I don not know what you do for a living so I will throw these ideas out there. Things might be different in Pa than IL. You won't be covered by workmans comp. You will have to provide you own health ins. You will have to provide liability insurance (incase you screw up) You will have to pay your SS and unemployment benifiets.
Bill

 

[Soundguy]

I've been offered a job as an independent contractor. Although I've done a fair amount of contract work over the years, I was always an employee (for payroll and tax purposes) of the agency.
This will be my first time as an independent. I'm doing some research (online) but would also like some experiences of folks who have done this kind of work.
Although the rate (hourly) is quite good, if the added expenses/taxes of being "independent" cut into the gross too much, it won't be a worthwhile endeavor for me.

So, any of you guys ever worked as a 1099 contractor?
If so, what are the pitfalls? The advantages?
A little more info: my work schedule would be set by the agency which, in turn, is contracted to the client.

i did it for the past 12ys and just finally got hired on as an employee.

I got a 1099 at the end of the year instead of a w2... I paid quarterly taxes.... I already filed 1040a long form anyway... I just gave all the stuff to the cpa. bill was about the same when I was an employee as a sub...

money is money...

soundguy

 

[RoyJackson]

I don not know what you do for a living so I will throw these ideas out there. Things might be different in Pa than IL. You won't be covered by workmans comp. You will have to provide you own health ins. You will have to provide liability insurance (incase you screw up) You will have to pay your SS and unemployment benifiets.
Bill

I already knew most of what you posted.
I work as a Quality Engineer...mostly in the automotive, aerospce and rail industries. (Light) Rail is the biggie, right now. It's a very busy industry and should be going strong for the next several years.
Liability insurance won't be needed (I think...might be something to consider if I go S Corporration or LLC).

What I'm mostly concerned about is the deductable expenses. There's an opportunity to make very good money doing this, IF I can get past the first few (ramp up) months.

 

[RoyJackson]

i did it for the past 12ys and just finally got hired on as an employee.

I got a 1099 at the end of the year instead of a w2... I paid quarterly taxes.... I already filed 1040a long form anyway... I just gave all the stuff to the cpa. bill was about the same when I was an employee as a sub...

money is money...

soundguy

The CPA costs are deductable too, correct?

 

[Duffster]

Liability insurance won't be needed (I think...might be something to consider if I go S Corporration or LLC).

I guess I have to question this.

Why not?

 

[JimRB]

Business use of a personal vehicle. Does your autombile insurance frown on this? My homeowners insurance tried to cancel it because they saw a farm sign at the entrance to our property. All the creatures on our farm are owned by us or we were leasing them. We have no boarders and we do not give lessons. We sorted that out and continued our coverage.

Back when I did tile work I had one vehicle that was my work vehicle and got very little personal use. I think I deducted as much as I could on that vehicle. We have not deducted a corner of the house my wife uses for her artwork and graphic design. Some more aggressive folks would claim business use of a room in the house.

It sounds like you have a good opportunity ahead of you.

 

[RoyJackson]

I guess I have to question this.

Why not?

In the position I'm looking into (the client has already told the recruiter they want me), I would be contracted to a company that coordinates my schedule for their client. Compensation would be as a 1099 Independent Contractor.
Unlike a doctor, lawyer, Accountant; I wouldn't have my own business unless the S-Corporatio or LLC made sense. This is what I'm looking into now.
As far as liability...in theory, I suppose the client (of the agency I'm contracted to) could sue me if I made a costly mistake. Something to consider, I suppose...but I don't see liability as being a big threat in the kind of work I do.

Although I've done a lot of contract work over the years, this would be the first time I'd be going in as 1099 (although it's not unusual for this type of engineering work). Previously, I'd work as a "short term" (W-2) employee of the contracting agency.
Many large companies use contractors. I know Harley Davidson's engineering dept. was about 40% contractors. This is advantegeous to the contractor as it frequently pays a higher rate and to the company as they have less "employees" on the books.
This kind of work also depends on the quality of the contracting agency (not the client). Some have been around for years and are good to work with. Due to the crappy economy, there's a lot of upstarts (both in contracting and recruiting) that really suck. That's why it's important to actually interview with the client company to make sure it's a good fit (not all are...I could name one that was very recent).

Bottom line is, can I do this job and make money at it.

 

[Duffster]

In the position I'm looking into (the client has already told the recruiter they want me), I would be contracted to a company that coordinates my schedule for their client. Compensation would be as a 1099 Independent Contractor.
Unlike a doctor, lawyer, Accountant; I wouldn't have my own business unless the S-Corporatio or LLC made sense. This is what I'm looking into now.
As far as liability...in theory, I suppose the client (of the agency I'm contracted to) could sue me if I made a costly mistake. Something to consider, I suppose...but I don't see liability as being a big threat in the kind of work I do.

Although I've done a lot of contract work over the years, this would be the first time I'd be going in as 1099 (although it's not unusual for this type of engineering work). Previously, I'd work as a "short term" (W-2) employee of the contracting agency.
Many large companies use contractors. I know Harley Davidson's engineering dept. was about 40% contractors. This is advantegeous to the contractor as it frequently pays a higher rate and to the company as they have less "employees" on the books.
This kind of work also depends on the quality of the contracting agency (not the client). Some have been around for years and are good to work with. Due to the crappy economy, there's a lot of upstarts (both in contracting and recruiting) that really suck. That's why it's important to actually interview with the client company to make sure it's a good fit (not all are...I could name one that was very recent).

Bottom line is, can I do this job and make money at it.

Roy, Liability Ins is cheap. Do yourself (family and estate) a favor.

One doesn't have to have a LLc or Corp to be a business.

 

[RoyJackson]

Roy, Liability Ins is cheap. Do yourself (family and estate) a favor.

One doesn't have to have a LLc or Corp to be a business.

I'll give that some consideration.
BTW, I did contact the contracting agency (last Friday) about working for them as an S Corporation. No response yet.
The agency I'd be working for is long established. I've worked with some of their people on and off over the years.