Independent Contractor

I'm in the US and I'm thinking of accepting a contracting position with a company that I've done contracting with before. The difference this time is that there won't be an agency in the middle. As agencies typically take > %20-%30, this would be a benefit for the business to hire me.

The only drawback I see is that without an agency in the middle, I'm open to lawsuits directly and I have to manage withholdings myself. I could easily hire an accountant to do the paper work but I'm concerned about laibility. Can anyone here that has actually worked as an independent Contactor in the US tell me the best way to work directly with a customer?

Heres what I do. I invoice the customer directly using my corporation. I set up a C Corp using the Quicken website. I incorporated in Delaware ( your only need a single person in Delaware and the taxes are minimal) cost is about 300 bucks.
The money comes into my corporation. I am an employee of said corporation and do all the withholding that way. I take 10K per year and put into a tax exempt Medical savings account for health care (way better than throwing it away on health insurance). If I need to reduce my taxable income there are many options ie. pay my wife, kids etc. The goal is to make sure there is no money left in the Corp at the end of the year. Unlike public companies your company should not make any money and how you take money out of the company is pretty straight forward and the C Corp is a separate entity to you as far as any liability goes.

Works great.

Allan

I was an Independent Contractor for GE Medical many years back. I never had an issue with liability as being an independent contractor means you still have to sign a contract. Just make sure that contract doesn't hold you liable for anything outside of gross incompetence.

Registering a C Corp would work, however the cost to have an accountant file your "I made nothing this year" claim to good ole uncle sam gets expensive (and nulls being a contractor for financial reasons, I owned a computer shop for a couple of years, found out why C corp kinda sux for the little guy, better be LLC in that situation). Hambone is correct though, with C Corp (and even S Corp), making nothing through out the year means paying no taxes. Paying your wife a high salary is good, however then you get into partnerships OR you have to pay unemployment on her if she is just an employee (which isn't bad, but gets costly as well).

Personally I wouldn't worry about it too much. Just look at the contract (and talk to an attorney if need be about it) before you sign it to excuse your liability. Taxes need to be done quarterly for you instead of yearly as an indie contractor, so make sure you file them every 3 months.

It's not a bad racket, the only thing that sux is the filing to of taxes. But there is software that can help you there (remember to keep all your reciepts for gas, food, etc, its all deductable as an indie contractor)

I set up an LLC in Texas... no state income tax BUT you have to set up the LLC in the state you do business in! LLC stands for Limited Liability Corporation and can be easily done with a few select forms downloaded off the web and sent in to whatever state comptroller... Then I invoice and bill as well...

Quicken or Quickbooks can handle most of the details for you.

I've been doing contract work for 4 years now. Just make sure you do your job properly then there won't be any issues. Als I do all my accounts in Excell and give them to my accountatn at the end of the year and they wrap it all up officially for a small fee.

Generally for this type of work you don't want a C corp. An S corp is better for tax purposes. If you can get some type of liability disclaimer written into your contract, that would probably be the best way and then just keep it a sole proprietership.

Also, one thing the average person doesn't know: even if you have a corp you can still be held personally liable IF the corp isn't really acting as a corp. For example, no typical corp structure, no board meetings, that type of thing.

I'm not a lawyer or an accountant, but I do retain both and this is my experience having had a private consulting business.

Grey: Unfortunately in today's litigious society, we can't count on doing the job right to protect us from liability.

When I did IC work I didn't do any corporation. I simply counted it as income. In my case I was working for my previous employer and the contract simply specified I got paid for hours worked with the option of any party to cancel the contract at any time. Liability was limited, they didn't like what I was doing they could simply terminate the contract, same for me.

Thanks for all the comments. I'll be sure to get an account and lawyer and include something about limited liability in the contract.

Grey - the problem is that what I may consider doing the job properly may not match the employer's definition. To be fair, I've worked with this employer before so I know them and they know me. I don't expect any problems but I still have to plan for them. Do you do contracting full-time?

I don't believe I can wait until the end of the year to do taxes. I believe I have to file quarterly. Of course, the expense of an account will be much cheaper than learning at the hands of the state.

used to for 3.5 years, last year though mainly farting around with games but also some contracting (in Delphi) and consultancy jobs (which has similar liability issues if they think your advice/service is crap). However, cranking up the contracting again for a few months to bring in some instant cash. Contracting is with same firm. Consultancy is with many different ones.

I have to pay VAT and employers tax quarterly and have proper accounts done annually. It costs me around £500 per year (plus as I said I do my own work to track/prepare the accounts for them). I earn good money from contracting so the accountants fees are peanuts plus if I did the work it would take me ages and I may make mistakes AND they advice me on cool (legal) tax breaks etc so it's worth it. Sometimes paying money saves money.