Attention Independent Contractors! Things To Consider For The New Year.

Independent Contractor Tax Advisors wants to take a moment to remind you of a point that becomes increasingly important as the New Year approaches.

Form an Entity!

For those that have been W-2 employees, but are looking to make the switch to 1099 work, or you who have been working as an independent contractor, but don’t have an entity yet, it’s time to get the show on the road!

If your 1099 net income (after expenses) is over $30,000 annually, in most states, you will want to form an LLC that elects to be taxed as an S corporation by the IRS. As the owner of an S corporation, you are able to shield a substantial portion of your income from self-employment taxes by paying yourself a reasonable salary, while the remainder of your income is converted into tax-efficient dividends.

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Let’s take a look at the example where an Independent Contractor earns $75,000 of net income:

Sounds like a no-brainer right? Well unfortunately, if you don’t have an LLC established, and are not receiving payments directly to your S corporation, then that income is considered Sole Proprietor income, and you are paying a heap of taxes more than is necessary.

The reason this is important to consider before the year ends is because it can often take several weeks to process the paperwork to form your LLC and file form 2553 for your S election, plus filing Form SS-4 to receive your Employer Identification Number (EIN), which is needed to open your business bank account.

Then you need to apply for your withholding and unemployment insurance tax account numbers, once the LLC is open, which can take time as well. If you don’t start now, you could potentially be leaving money on the floor, by not billing your clients through your newly formed LLC.

We help independent contractors that don’t have an LLC already or need help making sense of all the paperwork and legalese involved with the formation and upkeep of S corporations. We run payroll, guide you on dividends, handle your bookkeeping, and advise you on various tax strategies that are available to you as well as preparing your S corporation tax return.

When you sign on as a client with us, we take your compliance burden and run with it, allowing you to focus on the best part of being and independent contractor, making money. However, making money isn’t any good if you don’t get to hang on to what you earn, so contact us today for a free tax consultation and find out how you can save thousands in taxes.

CLICK HERE FOR A FREE TAX CONSULTATION

Tags: corp to corp