Greg's disclaimer remains in effect for this email as well. My apologies
that this is completely un-Perl related, but hopefully there are some
other newbie Perl contractors out there that might find this useful. If
that's not you, just delete now, and get back to the important subjects
of sheep transportation. :)
Just to add a couple of comments about doing 1099 work. The "paperwork"
of being your own boss really isn't that bad. You have an accountant
that really does the hard stuff. You'll save much more than he costs in
the end. Bookkeeping is as simple as PeachTree, Quickbooks, etc. Or you
can hire a bookkeeper more cheaply than an accountant and they'll take
care of all that for you, thus saving you some money from the
accountant.
Incorporating has added benefit in terms of sub-contracting.
Unfortunately, just because you incorporate, it doesn't protect your
personal assets if you screw up a job, but if you sub-contract or even
employ somebody and they screw up, it does offer some protection from
their mistakes. And depending on what type of incorpating (S-Corp, LLC),
there may be tax differences.
I highly subscribe to the "get a spouse with benefits" philosphy. My
wife works in the education system, gets great benefits, and a pitiful
entry-level teacher's salary. But a nice added benefit is employer
matching retirement accts. Since as a contractor, you'll make tons of
money, you can have your spouse pump as much as possible into
retirement, thereby increasing what the employer puts in there, and in
the end it's like you're contributing to your own acct. Of course then
you guys have to learn to share. (None of this "I make x-hundred
thousand dollars a year, I can buy platinum hubcaps for my Benz if I
want" crap now, because remember, in retirement, he/she will be the one
with all the money. :)
Otherwise, health and dental insurance is outrageous. I've heard of
groups of mercenary contractors banding together to purchase insurance
at slightly reduced rates, if that's true, maybe you can find something
like that to save a few cents.
Probably the most important recommendation I make in this email is this:
really consider short/long term disability insurance. The stuff is so
cheap for what it gives you. Remember, if something happens to you and
you can't work for three months, you don't have vacation time/sick time
to use. You have no income, other than what you might have stashed away
for savings. You don't want to worry about where your pay is coming from
when you're laid up in the hospital.
And don't forget to look into liability insurance. Some business will
actually require you have this before hiring you.
I put 50% of every dollar I earn away for taxes. With a good accountant,
you will get some of that back, even after accounting fees. Depending on
how much you have to pay in quarterly estimates, you may want to
consider investing this at a slightly higher CD rate. For instance, my
bank offers a 91 day CD that allows me to deposit more money during the
term. Sure, it's not the greatest performer in the world, but it's
better than savings, and still doesn't tie up the money that I need to
pay to the gov't.
I would appreciate hearing what other people have to say to you that
don't post to the list. Might be some real gems in there.
Thanks,
Christopher
On 05 Jul 2001 10:19:03 -0400, Greg London wrote:
> (disclaimer: the following is to be considered rumor and
> allegation. you and you alone are responsible for your
> tax, retirement, and benefit situations.)
>
> if you want to be literally you're own boss,
> and you're willing to do the paperwork to do so,
> then you can file taxes as your own business (1099).
> i.e. you're paid an hourly rate, and you get exactly
> that hourly rate in your paycheck, no deductions,
> no withholding, no retirement. At the end of the year,
> the person writing you're checks will give you a 1099
> form that tells you how much they paid you last year.
> they'll also send a copy to the IRS, so don't think
> you'll just take it under the counter.
>
> there was an court ruling a couple years ago that basically
> said if the person filing 1099 does not properly file his/her
> taxes, then the IRS can go after the company that paid him/her.
> so companies have become gun-shy about paying you as a 1099.
> I believe that if you incorporate it shields the company
> paying you from tax liability. so you may want to look
> at incorporating.
>
> which brings us to the first thing you should do if
> you're thinking about going 1099.
>
> get a tax accountant that deals with small businesses.
> they should be able to help set you up. They can also
> confirm/deny anything I've said in this email.
> you're situation may vary, and the tax code changes
> every year.
>
> they can help you figure out your estimated taxes.
> You'll have to pay estimated taxes on a quarterly basis.
> based on predicted income, you send X number of dollars
> to state/federal every three months.
>
> Retirement will be via a SEP (self employed program??)
> (not sure what the acronym stands for anymore).
> how much you can contribute, I believe, is a function
> of how much you make. SEP is something you can contribute
> this year for last years taxes if you contribute before
> you file (i.e. before April 15). your accountant can
> help you determine how much you can contribute.
> you can set up an SEP with American Century or several
> other investment firms and select what type of investing
> strategy you would like.
>
> You may also be able to use IRA's as a means to help
> your retirement. but the rules have changed a lot lately,
> and I'm not sure how IRA's work anymore. last I knew they
> had an extremely low contribution limit ($2000 ?). And depending
> on your income, they were not pre-tax contributions.
>
> There may be new retirement programs that I dont know about.
> ask you're accountant. thats what you pay them for.
>
> Benefits I don't know as much about. When I was single,
> I would buy short term health insurance. you'd get coverage
> for a year. and if you didn't file a claim the first year,
> then you could extend it another year. the deductible was
> high enough that it was mainly my "6million-dollar-man"
> policy. i.e. i didn't bother using it if I got the sniffles,
> but I had it just in case I got in an accident and lost both
> legs, an arm, and an eye. I don't know if they even have
> that kind of insurance anymore.
>
> if you're married, get on your spouses health program.
> I know people who have spouses that work at very low
> paying jobs just so they can share the medical/dental,
> and the other spouse can work at some outrageous hourly
> rate but no benefits.
>
> as far as percentage, a conservative rule of thumb is
> for every dollar that comes in, put half of it in a savings
> account and don't touch it. only use that money for the quarterly
> tax pre-payment and retirement fund contribution.
> if you have any left over in the savings fund,
> consider yourself lucky, and use it to buy yourself a vacation.
>
> Greg
>
>
> Chris Dugmore wrote:
> >
> > Greetings - I am seeking advise about contract work. I am not
> > looking for hourly rate or project level pricing information. I am looking for
> > information about percentage that is paid out in taxes, retirement investing and
> > benefits (health and dental). So, what percentage of the hourly rate goes to
> > taxes? Do you alloate a percentage to be invested for retirement? Can you make
> > pre-tax retirement contributions? Which financial companies work with independent
> > contractors/consultants to help establish retirement packages? Does anybody ever
> > think about retiring? For health and dental benefits, how much does coverage cost
> > annually and which companies provide the best services?
> >
> > I'd be grateful for any information and will happily summarize the responses for
> > any interested individuals.
> >
> > Thanks in advance - Chris
> >
> > _________________________________________________________
> > Do You Yahoo!?
> > Get your free @yahoo.com address at http://mail.yahoo.com
>
> --
> Greg London
> x7541
