contractor $$ questions
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- beedee
got some questions for anyone here that is employed as either full-time contractors or freelancer.
I'm taking a job w/a company as a designer, and I will be paid as a "full-time contractor". However, this is not a short-term gig, for all intensive purposes, I'm a permanent employee. W/o going into specifics, this is simply the employment model they adopted to survive the rough economic waters of the past 2 years. Everyone, including management, is on the books as either a full or part time contractor.
So what this means is that I am paid $XX/hour for 30 hours per week. Aside from medical insurance, which I pay half the cost of (at a VERY reasonable price), I will now have to manage all my taxes/witholdings on a quarterly basis. My company graciously foots the bill for an accounting firm that I can use, which will be very helpful.
So I'm looking for some helpful tips & advice from anyone else here who manages they're own taxes under a similar employment model. I'm very interested in the possibility of now being able to write off business-related expenses such as new equipment or software, but I don't wanna raise any eyebrows w/Uncle Sam. Also, if I am going to be setting aside money every quarter to pay my taxes, are there any good, safe, short-term investments that I could put that money into each quarter, instead of letting it sit statically in a standard checking/savings account?
Thanx!
- sparker0
you could use a money market account or a swiss bank account.
both draw a bit higher interest than traditional savings accounts, and both function like checking/savings accounts. (ie, debit card, checks, etc...).
- GreedoLives0
i'm on the same employment model.
some tips:
* EVERY meal is now a business expense. You only get to deduct 50% of it, but get a receipt EVERY time you go out to eat with other people (by yourself doesn't count).
* Buy expensive business-related stuff (computers, printers, etc) every year. Nice tax-deduction and you can claim depreciation on big ticket items such as computers.
* Keep receipts for transportation. Gas for car, subway passes, whatever.
* As for investments, get a money market acct asap. Better interest than any savings account, but you gotta keep a minimum balance (at least $2,000 for most banks). You could fool around with stocks, but that's gambling territory these days.
* Basically, collect receipts for EVERYTHING (books, movies, whatever. That's research.)
- sauerbraten0
i'm in the same boat, listen to Greedo, he speaks truth. good thing is the "business expenses" being a small business as you are, you can be very liberal with your expenses, keep good records and you're set.
good luck!
PS. there's pros & cons of being a perma-lancer, but it's nice to know you're independent and you're making your own way, it's nice to feel like you're in charge. if you go out to dinner or coffee with a friend/colleague/client and talk business, write that isht off.
- JazX0
$50/hr
- sparker0
on a side note: i would make sure and read your contract, thoroughly! find out how intellectual property and such work in your situation.
- GreedoLives0
BTW, the self-employment tax rate is pretty high (low 30%s), so take the receipt thing seriously. I pay more taxes than the full-timers at my job that make about the same as me.
It's almost like the gov't likes to punish small businesses.
- sauerbraten0
true, but you should be able to get a higher rate than if you were working as an employee, so it kind of evens out, if you can write off expenses like your computer, printer, stuff like that, you have a big advantage though.
- beedee0
GreedoLives: "BTW, the self-employment tax rate is pretty high (low 30%s)"
What do you file as, Sole Proprietor, LL, or are you incorporated, or is there a specific tax classification for FT contractors?
- GreedoLives0
i file as sole proprietor, but am also incorporated. i'm basically two businesses. a bit of a tax cheat, don't tell anyone.
but the self-employment tax is a flat rate, it's not determined by how you file.
being incorporated, however, allows you to deduct more. but then you become your own employee and you have to do more paperwork. talk to the people at the accounting place you have access to, they'll tell you what's best for your specific situation.
- sauerbraten0
sole is the most common for freelance anything