W-2? 1099? Corp-to-Corp? What's a new software consultant to do?

I am viewed as a mere dollar amount when it comes to determining value by the owner of the corporation I have been with for 15 years. I know too much pertaining personal use of funds in excessive amounts, fraudulent activity, etc. I was approached to consider being a consultant for the corporation ilo full time employment. I took a pay reduction in January for 18k per year, vehicle fuel benefits, etc. I know make 132k per annum. Our owner feels that he should be able to reduce my salary significantly through consulting by requesting me continue to do the same position (running his company) for 24 hours per week (ilo 50+) and of course a much more minimal salary. As I have never consulted prior I created a consulting agreement for $118k in which he is now contemplating an offer lower which I should hear this week. My concern is I donot trust this owner and feel that his primary function is to eventually dissolve me from any involvement in the corporation due to my knowledgeon of his corporation. I am at a bit of a loss as I am unsure how to proceed. I am greatly committed to this company and have had great involvement in building it up to the status is currently is. I have prepared a consulting agreement with a 3 year term and payout for remainder of year in the case of contract termination to attempt to cover myself until I can possibly locate additional employment. Your advice would be greatly appreciated!

Boy I hate the thought of tax time, but you have supplied some good information, should be very helpful.

I will keep following your blog, I really enjoyed reading your article, i look forward for your future posts.. Great job!

I really like the back and fourth discussion that this post has allowed.

I can only agree. Really a great contribution. Unfortunately there are too few good blogs :-)
best regards

Peter

great article ! Thank you for sharing this.

Good job!I really like this article.Thank you for your beautiful article.

Great job!I really like this article.Many thanks for making the sincere effort to explain this.

Many thanks for making the sincere effort to explain this. I feel fairly strong about it and would like to read more. If it's OK, as you find out more in depth knowledge, would you mind writing more posts similar to this one with more information?

Admiring the hard work you put into your website and detailed information you present. It's awesome to come across a blog every once in a while that isn't the same outdated rehashed information. Wonderful read! I've bookmarked your site and I'm including your RSS feeds to my Google account.

Great article, Thanks for sharing the informative post.

I am absolutely amazed at how terrific the stuff is on this site. I have bookmarked this webpage and I am visiting the site in the upcoming days. Great job!

"but it can really become quite complicated."

Yes, i think so. And what have you done to figure this out?

Corp to corp is one tricky and complex topology. Nonetheless this is timely simply because we get to have this with current corporations today. And this would now be a challenge much like nfl expert picks and nfl predictions.

Thanks for sharing advantages and drawbacks of these. These are new topics for me.

Absolutely Stunning blog my friend! keep it up.

At first, I would like to say thanks for the awesome article regarding W-2, 1099 and Corp-to-Corp. It's my first time to read this blog and really this is very interesting blog.

Took a lot of time to read but I really found this very interesting and informative, thank you buddy for sharing.

I wish the laws did not keep changing. It is very difficult to keep up with changes. Moreover, I wish they were clearer. I have had several tax preparers prepare my corp returns and they all seem to do them differently.

you can actually find out a bit more about this stuff if you do a google search.

Hi Linda,
I am going through a divorce where my X was in a partnership in an LLC and said his partner didn't want to stay in business and was closing the business.... However the partner has taken over everything (showroom, web-site, assests ect.) and won't provide financial documentation.

Now my X has has opened another company with someone who lives out of state most of the year and claims that person owns the company and ****that he is only an employee and so he can't provide new company documentation*** such as the operating agreement and paycheck stubs.

He provided a Limited Liability Company agreement where it states he has an 8% interest and partner who lives most of the year in another state 92%. My X filed the state forms as manager.
I've been told by an accountant that That IS the operating statement. IS that true?

The state filings show an LLC and he is paying himself as an employee. (He did try that with the last company until I questioned his accountant and they changed it because he can't be a member of a partnership and an employee). Now he is saying he is only an employee. My Accountant said "you are not a legal employee under this arrangement. IRS regulations do not allow a member to be an employee when an LLC is taxed as a partnership". IS this true? And if so, would you know where I can find this law in writing (I've searched) for the court.

His new company is doing business with the original company that was taken over(closed/transfered) by his partner but he won't provide those agreements/financials to me because he is claiming he is just an employee of the new one and can't....
Can you help me and my kids??????
Thank you-

linda - this is a huge resource for so many - thank you.

i have a multi-member LLC doing business consulting. every once in a while a client will insist on writing a check to me in my name with my personal SSN and issuing a 1099. they have varied reasons for doing it and i try to reason with them but get nowhere. so far i have turned these projects down.

my question is if i receive a payment in my name and get a 1099 with my SSN is there some formal way i can "transfer" the revenue to my LLC and make sure that the Fed and NJ tax depts don't hound me in years to come?

Hi Linda,

Thank you for your wonderful article. I read it from the line 1 to the last. Appreciated.

I have a question on HOW TO EXCLUDE the FIRST 7.65% EARNED INCOME. Any IRS publication on this? This tax break was mentioned in your article (please see the below for the section of your article).

Thank again for your time.

Best,
Your reader

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Self-Employment Taxes: The Unexpected Tax

This is where the self-employed really lose out over corporations. Any profit on earned income that accumulates in your business is subject to self-employment taxes. This is true of partnerships and LLCs, too. Only corporations are not subject to this tax on accumulated earnings. They have their own tax on excess accumulations to worry about, but it usually doesn't affect small corporations.

Before we get too far, just what are self-employment taxes? Self-employment (SE) tax is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most wage earners.

You may not be aware that your employer matches every dollar that is withheld from your W-2 paycheck for social security and Medicare taxes. Employees pay 6.2% and employers pay 6.2% for a total of 12.4% on the first $94,200 of wages (that's the social security cap for 2006) and 1.65% each for a combined total of 2.9% on the remaining amount for Medicare. As a self-employed individual, you get to pay both halves, but the IRS gives you a bit of break and you can exclude the first 7.65% earned income. Plus you get another "break" because you can deduct half of your SE tax from your taxable income (Form 1040, Line 27).

So many people go into business with no idea this tax is out there then come April they get slammed with the SE tax. Then the IRS will get them for interest and penalties because they didn't make any payments toward it throughout the year. It can be quite a shock!

Linda,

This is a fantastic blog I have seen for consulting and corporations related Qs. Thanks for the effort.
I am on H1b status and working for a company on full-time basis. I am setting up S-corp IT services company and have some quick questions, please provide some insights into these:

1. Is it better to hire someone as recruiter for my firm on part-time basis and pay minimum wages plus commission based on performance (or) give a percentage based on performance, but for later scenario unless my employee achieves goal he/she would not be able to get any pay. So does the later scenario have any legal and tax issues
2. In contracting cases, My company will act as Middle men for client and another consulting company (whose employee will be consultant providing services to my client). When I get payment from client, I would have to deduct all the expenses and pay to the consulting company I am in contract with. How do the taxes go with the income I have now.
3. Can I hire someone in canada/uk or other country who will manage the company and run Do I need to have atleast 1 employee in USA to run the business.

Linda,

I'm a contract Web developer living in Connecticut and I am considering taking a position several hours from my home. The position is in another state and would last for six months. I would rent a room during the week returning home on weekends. My choice upon hire is either a W2 or Corp to Corp, they don't offer 1099. I'm considering corp to corp but I have several questions:
1. Which is easier to set up, an LLC or S Corp?
2. I'm working on a 1099 now. Which is the most similar to a 1099?
3. The LLC seems to cost approximately $500 to set up online. Is this generally the amount you would expect to spend?
4. My assumption is that, like a 1099, taxes are not deducted weekly or monthly. Is this correct?

I appreciate your time and answers.

Kind regards,

Rob B