Re: Software-dev side work: S-Corp, LLC, or 1099 wages?


"Dave H." <dh1760@xxxxxxxxx> wrote
[Note that I've cross-posted to misc.taxes.moderated, as I'm not sure
the percentage of "real" readers here versus advertising and spam
posters ...]

I'm an I.T. professional currently working as an employee for two
separate NY businesses, receiving two W2s at tax time. One is full
time, paying about $120k gross. The second is part time, paying about
$40k gross. In addition, I'm in a position to take on several side
jobs that would either pay 1099 wages or allow me to be paid as a
vendor (my choice).


There's no difference between "1099" and "vendor" except in the name. All
"vendors" who are paid more than $600 are to be issued a 1099 for their
services.



Initially, the side jobs would pay less than $10k
gross annually, but there appears to be room for growth.

In addition to the pending side jobs, the business that I work for
part time would be willing to change my pay arrangement to 1099 wages
or a vendor relationship, should I desire to go that way. That would
reduce my W2 income by about $40k annually, transferring that amount
to either 1099 wages or vendor income.



One thing here to note, it's not with a hand shake and a wink of an eye that
determines if you are an employee or an independent contractor.



My concern is that the additional wages would push my gross income
even higher than it currently is. Can a case be made for establishing
an S-Corp or LLC, versus accepting the 1099 wages? If so, is there a
distinct advantage to one or the other of the entities? I've been
lead to believe that there can be advantages to establishing a
business and paying myself as an employee.




Self-employed and LLC result in the same tax implications. There may be
some liability protections with an LLC, but I don't see it where you're
providing all the work that could possibly give rise to a tort. Buy good
insurance.

Your full time employment exceeds the current FICA cap, so any additional
wages are subject to the Medicare rate of 1.45% (2.9% SE tax).

SE tax on that $10,000 additional income would be less than $300 (even less
if you take any expenses against that income). Hardly worth the time,
trouble and costs of incorporating and the related annual filings. And it's
likely the IRS would require some or all of the net profits from the "S" to
be subject to payroll - net result is a cost to save nothing.




My bottom line goal is not necessarily to own a business, althiugh I'm
not averse to doing so. I would like to be able to maximize the money
I earn by minimizing my tax burden and being able to write off some
day-to-day expenses, such as my car, computer equipment, home network,
and perhaps the occasional meal :).

Hope I've provided enough detail and laid out my questions in an
understandable manner!


Home office is allowed for the self-employed - not the "S" corporation.


Get your basic numbers down on paper. Dig up info on your current
employer's benefits package and a copy of last year's tax returns. Go see a
local CPA or EA about these tax matters.

It's most likely there is room to defer some of the profits into a Solo-401K
of some sort based on the business profits. After talking to a competent
CPA or EA, go see your financial advisor.





--
Paul A. Thomas, CPA
Athens, Georgia



.

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