I am still doing some part-time website consulting on the side, and it is simply amazing how many people are interested in hiring me. Almost every new person I casually meet with a small business, when I say what I do, I get “Hmm.. you do websites? Do you do <insert their business niche here> sites?” What is nice is that for some clients I can build up a nice steady stream of income after I set up the initial site, where I charge them a certain amount each month for hosting, site updates, and occasional support. I honestly think I could do very well with this, the only thing stopping me is my mediocre time management skills.
One thing I have learned that since I lose 50% to self-employment taxes, I have to make sure to make it worth my time. For example, say I charge $50 a month. If I end up spending an hour a week on that client, that’s 4 hours of work for only $25 take-home. Working for yourself is fun though.
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Do you know of any web sites that show how much consultants (independent contractors), say website consulting, should charge locally?
A full-time web developer may range from $25-45/hr, should consultants charge much more than that because of the tax being paid?
I have told you before Jon it is time to incorporate. I went thru the same thing when I started my business. Although, I think it is an eye opening venture and everyone should at some point in their life work like that and have to make a check out for their taxes so they can see it instead of having it deducted automatically. People would be a lot more upset about how high taxes are. The Inc. helps though because there is more you can write off and you can pay yourself some in dividends (which are taxed less) and a regular salary. Check it out. It does help if you have a friend who is an accountant or at least can do some of your own book keeping with Peachtree or QB
I agree with Greg as long as you do an S-corp – not a C corp. S Corps allow you to take a profit distribution that is not Self-employment taxable. Just make sure to pay yourself a reasonable salary so the IRS doesn’t flag you as an audit candidate.
Another option is to start an LLC (a lot easier in terms of paper work) and then elect to have it taxed as a corporation, and finally have it treated as an S-corp for tax purposes.
I did this with my own company, and it seems to be working out well. With this option, you pay yourself a wage, which does include self employment taxes, but then you can give yourself a distribution, which does NOT include S.E. taxes.
You have to be careful, as the IRS does not like people making a $10 salary, and taking a $1000 distribution, so talk to an accountant before you jump in.
The great part about it is that you can set up the LLC online, and print off the election forms and mail them in. I did it all for about $200 if I remember right.
Good luck with your business!
-Grant
I may be a bit ignorant here, but I thought as a independent contractor for really anything, you would still be considered a sole proprietor and can take regular business deductions without incorporating… I would imagine the list of possible deductions for web site building is a bit limited compared to some other things, but none the less, if you itemize every possible thing to your business, I would think it would help out with the numbers…. When I got my real estate license last year I asked my accountant if I should do anything special like incorporating, he just said to keep track of every dime I spent getting my business going and we would itemize everything possible…
S-Corps, definitely interested.
Eric – Oh yes, I will definitely be deducting any allowed expenses. But they really don’t add up to that much, which is of course good since that means I have low overhead. I have been working hard in setting up my home office to follow all the IRS rules.
With a C-corp you can choose a different tax year that will allow you to do some income shifting to lessen your taxes.
Also, I forgot to mention before if you incorporate you can start a SIMPLE retirement program that is tax deductable (up to $10,000 this year). And yes I pay myself a reasonable salary. This is unlike our former vice presidental canidate, John Edwards, who as best I can remember was paying himself $400,000 for a salary and taking like $10 million in dididends. Mine is an S-corp.
Ok, I’m getting more interested… For those that have S-Corps – Did you use a lawyer, an account, an online company, or did you do it all yourself?
Jonathan, I used form-a-corp.com and they’re pretty quick with the stuff. Make sure you google around for a working promo code – that saved me $25.
Better than the SIMPLE is the SEP IRA. While it’s not SE-tax deductible, it’s a FOR-AGI deduction just like a normal IRA – the only good thing is that you can deduct and invest up to 25% of your profit or 42k (maybe it’s a bit higher now), whichever is lower.
And, our favorite Vanguard makes it about as easy to set one up as putting on your pants in the morning.
I don’t know about setting up an LLC and then an SCorp..why not just set up the SCorp straight away? Paperwork isn’t tough w/ these online companies. You do need to hold a board meeting w/ minutes at least once a year but man, a few hours of paperwork is worth saving thousands of dollars in SE tax that you’d otherwise be handing over every single year.
My accountant did the whole thing about 10 yrs. ago and it was about $350 which is good but it was an investment for him also as he continues to do my quarterly and yearly taxes. I keep up with the day to day with Quickbooks and then take him an account’s copy on a flashdrive each quarter. The biggest rip off to me though is what QB charges me to up date my tax tables each year, not sure but Peachtree probably does the same.
PS I think it will depend on the state that you live in as I believe the laws differ from state to state.
Yes, I set up my LLC myself. I went through the Secretary of State and did it all online. The cost for the setup is different between states, and the LLC is a bit more expensive to set up, than a full blown corporation.
Then I went to the IRS.gov website and printed off Forms 8832 and 2553 to have the LLC treated as a corporation for tax purposes, and to elect to have the corporation treated as an S-corp. Your accountant will know what these forms are, as they refer to them as “check the box” forms. They’re that simple, just check the box and fill in the company information (Tax ID, etc). All it costs you is the stamps.
This is a good site to do some research on, especially before you go talk with an expensive lawyer or accountant:
http://www.small-business-forum.com
That way you’re not racking up bills having them explain the easy questions…
-Grant
Speaking of semi-passive income, you should consider signing up for this:
http://www.blogads.com/
You’d be competitive with the economy-related blogs. Most of the ones I’ve visited aren’t as fun as yours.
I would, but it seems like it is invitation only. I just sent them an e-mail, we’ll see if they reply.