Re: Salary Tax Question

I can't find where you ever mentioned what the employee SALARY would be
versus the actual HOURLY contract price and number of hours. Usually
this would have more impact than a tax advantaged pension contribution
and/or Schedule C expenses. As for accounting, there's software
available to calculate the form 2210 AI installments from your
income/expense input. You just plug your data into the spreadsheets
instead of giving it to a CPA.

ed

Sam wrote:
healthystealthy@xxxxxxxxx writes:

What is the better way to go?
I'm offered a job. I can either go contract between 35 to 50 an hour
and pay my own taxes. But this means I can put up to 25% into a SEP IRA
under my LLC set up.

Or, I can go on a full time basis, with no benefits since my wife has
them, but there is no 401K plan either. I guess I could open bonds and
other investments for retirement, plus I have a Roth IRA.

Which say is more beneficial to me?

Run the numbers yourself. There are, roughly, 2000 hours of work per year
(40 hours a week, about 50 weeks a year -- not 52, taking into account the
holidays), so you're talking about 70-100K gross. You did not mention if,
as an employee, you'd get any vacation time. If you do, make a comparable
adjustment.

Either way, you're paying Social Security and Medicare, but as
self-employed, you're also paying the company match, which, as a rough
estimate (factoring in the FUTA and any state unemployment taxes and
mandatory worker's compensation coverage, if any) would be about 8%.

True, a SEP IRA is very lucrative, to the self-employed. To
figure out how much that's worth, estimate how much you expect to contribute
to your SEP. From that, it should be simple to estimate how much you much
in taxes you'd save, so factor that in too.

Eventually, you should arrive at a number which would represent a salary
that's comparable, for your situation, to your 35-50hr.

Then, the salary that you've been offered would be either above or below
your calculated numbers, and you'll know which one is a better deal.

Don't forget to consider two things:

1) If self-employed, you may be required to obtain liability and/or errors &
ommission insurance. Double check with your potential client to see if they
require you to obtain one, if you were to go in as a contractor.

2) If you would be an exempt employee, the company may demand you to work
somewhat a bit more than 40 hours a week, on a fixed salary. If you believe
this may be the case, you might have to use more than 2,000 hours a year as
a starting point for your calculations. But, consider this: once you get
paid per hour, the expectations of working crazy hours often vanishes into
thin air, once the company has to cough up the extra cash. My profession is
one where employees are often expected to put in crazy hours. Even if
someone would come up and offer me a salary that's comparable to what I make
as a contractor, I'd laugh in their face, since I know I'd be expected to
spend twice as much time at the office. And even if they offer me twice as
much I'd still laugh -- I'd rather work reasonable hours and spend the rest
with my family.

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