Business Advice?

[jorymil]

I'm not a professional trombonist, but I recently transitioned from a 40-hour-a-week W2 job (Linux engineer) to working as an independent, 1099-based contractor for the same company. I'm finding it to be a different world that I don't know much about. In particular, I'm getting ready to start dealing with taxes and likely establishing a separate business bank account and LLC.

For the seasoned veterans out there, what advice do you have on the business side of things? What mistakes of yours might I be able to learn from? In return, I'd be happy to offer any professional advice of my own with regard to websites, e-mail, domain registration, etc.

John

[BGuttman]

Make sure to pay your quarterly taxes. You can check what rate you will pay on the IRS Web site (www.irs.gov). You can also get a lot of recommendations on how to deal with self-employment.

Good luck.

[hyperbolica]

Definitely save 30-40% for taxes. Make sure you get expert tax advice. Be sure over time that you take time off.

Bill customers on a regular basis with a professional looking invoice, and keep track of all income and out-go, as well as all business related purchases, rental, fees, etc.

If you can avoid it, don't do business with companies that force terms of more than 30 days. It just builds resentment.

If they make you sign a contract, make sure there is no funny business. 1099s are at the bottom of the pile for everything. Give them every reason to treat you like a professional.

Stick to schedule, all they need is an excuse to make your life miserable. For some people it is hard to get up in the morning or work with purpose.

Buy real tools, and keep track of your receipts.

If you're involved with any company associated with the state of California, be very careful. CA has new rules for contractors.

Be very careful about health care. Get it through your spouses work if you can. Obama care had a mandate that contractors had to have health insurance, or you can get fined. They linked health care to taxes. This mandate is changing, so again make sure to talk to a tax pro.

There are a lot of different kinds of 1099 work. I've done it for 15 years. I've been stiffed a couple of times, and made some good friends. Some work is fun, and some isn't. Enjoy the good stuff and roll with the rest of it. Remember no one else is going to defend you, so don't let anyone take advantage of you. Once you let that start, it's hard to regain control.

Best of luck.

[SimmonsTrombone]

Get a good accounting program and use it. I was not able to get Quickbooks to run on Linux, though maybe the cloud version does. I just don’t like the idea of having my financial information in the cloud. I found a free program that seems to work cross platform including on Linux at
https://www.manager.io/free-accounting-software/us

I also recommend scanning everything - receipts, checks, reconciled bank statements. I’ve only dealt with the IRS once, but having a huge stack of paperwork seemed to make them happy.

[PhilTrombone]

I was in IT (SW development) for almost 4 decades, both as an employee and contractor status.

Think twice before accepting fixed-bid contracts; If you do be very clear about the project scope; You might originally think you can complete something in 200 hours for example, but if it blossoms into a much larger project, you are stuck with the original contractual bid but much more work, vastly lowering what you end up making for your efforts. If the scope changes, one needs to be able to re-negotiate.

Also, you might consider incorporating. The primary reason for doing this is protection of your personal assets in case of a work-related lawsuit. It can be a lot of extra paperwork. I never bothered when I was a 1099 contractor, but this was long ago (1980's).

Also, if you plan on staying in IT as a contractor, try to develop other clients/revenue streams. If your company is doing this to you, it is to save $$. Once you are a contractor, your status is much more tenuous, and they can just cut you any day they want. I have seen this happen many times. Insulate yourself by having multiple clients.

Independent IT consulting has been suffering in general of late; The major consulting firms and client corporations don't want to pay decent wages, and are abetted by the availability of very inexpensive offshore resources.

The ICCA just folded, for example. It was a good organization to help folks like you. Related article:

https://www.zdnet.com/article/independe ... -in-peace/


Best of luck!

[JLivi]

Most of this has been said already but my quick tips are:

- pay quarterly taxes. Once you file your accountant should be able to set up your quarterly estimates for the coming year.

- save 30% of all income. If you make a lot of money then might want to raise that percentage, but I’ve always been cool with 30%.

-get a scanner app on your phone. I use one called Scanner App. It allows you to create folders and organize anything you take a photo of. It also converts it to a PDF and allows you to share any PDF you create.

- keep a record/spreadsheet of all money coming in and out. Have one column for everything and then all the other columns be itemized (payouts, meals, etc.).

Not sure if any of that helps but those are what I do to manage my income and deductions. I’ve been lucky, my dad is a CPA, so he’s been able to make sure my tax/income stuff was organized and on lockdown from the start of my music career. The only issues I’ve run into is when the government/IRS messed up the withholdings table in 2018 and didn’t fix it for 2019. But that messed a lot of people up.

[CharlieB]

How I do it......
I have an accountant to handle the paperwork. It's not necessary to have a full-time accountant. There are many accountants who specialize in meeting the part-time accounting needs of multiple small businesses, and I'm happy to pay the small fee to free my mind of paperwork stress so that I can focus on the business. My guy has trained me how to feed him the information he needs to properly "keep the books." That way, everything is squeaky clean when he prepares the quarterly taxes.

[Matt K]

Separating business and personal accounts makes it way easier as you've discovered. It's going to vary state-by-state but when you set up your LLC, you should be able to find instructions for your state. It's usually pretty easy. I use a registered agent, personally. You get way overcharged to get your EIN if you use one of those services instead of getting it yourself from the IRS. Assuming you already have one, you can get a RA for like $100 a year and they take care of all the paperwork of renewing, etc.

If you don't use a CPA, definitely read up on small business taxes. There are lots of things you can deduce, especially if you are a "start-up" which you should be in this case.

Don't know if you've already negotiated your salary but if it's less than 30% pay increase, I'd probably just avoid the hassle and polish my resume up. That said, I'm a contract employee now and I love it. But if I would have gotten transitioned from W2 to 1099 at my last job I'd be irate.

[jorymil]

Thanks to everyone for their advice!

Had nothing else in my life changed, I'd ordinarily never agree to go from being a W-2 employee to a 1099 contractor. But rather than outright firing me, my employer allowed me to move to a completely new city (Kansas City) to be with my girlfriend and still keep the same job--in a place where tech jobs aren't as numerous or as interesting as they were in Boston. The only condition was that I stay on as a contractor rather than as a salaried employee. My hourly rate as a contractor is roughly 30% higher than my hourly rate was as a salaried employee, and I can work from wherever I want--coffee shop, house, library, co-working space, etc. (I've used all four so far!) No problem even to work from a different city for a few days and visit out of town family, or take a road trip where I drive at night and work during the day.

Tech-wise, I get to continue doing some really neat things with networking and IoT devices, and I get to keep learning new things (though sometimes about things I don't _want_ to learn about). And personally, it's really nice to keep relatively the same work routine while I deal with housing, health insurance, finding new doctors, and all the other things you have to take care of when moving to a new city. Even relatively trivial stuff, like "where can I go after work to wash my new comforter and pillows?" isn't as easy as you think.

If all goes well, it's a chance to be happier than I've been in a long time--growing my relationship with my girlfriend, seeing family more often, and having greater working freedom. If the whole thing goes up in smoke like a country song, I still have marketable skills and a professional network I can turn to for work. Either way, I'm going to grow as a person and learn what it's like to be in business for myself. It's worth the risk.

[PhilTrombone]

Nothing ventured, nothing gained. Good luck!

[JLivi]

Thanks to everyone for their advice!

Had nothing else in my life changed, I'd ordinarily never agree to go from being a W-2 employee to a 1099 contractor. But rather than outright firing me, my employer allowed me to move to a completely new city (Kansas City) to be with my girlfriend and still keep the same job--in a place where tech jobs aren't as numerous or as interesting as they were in Boston. The only condition was that I stay on as a contractor rather than as a salaried employee. My hourly rate as a contractor is roughly 30% higher than my hourly rate was as a salaried employee, and I can work from wherever I want--coffee shop, house, library, co-working space, etc. (I've used all four so far!) No problem even to work from a different city for a few days and visit out of town family, or take a road trip where I drive at night and work during the day.

I've heard that happen to a few of my friends too. The free-lancing thing can be a little scary, not knowing what's coming next, but I know a few people that went from salaried positions to contractors for their companies and make more money. And you get extra deductions, but pay more in taxes due to the self-employment tax (~7-8%?).

Good luck in your adventures!

[Matt K]

Thanks to everyone for their advice!

Had nothing else in my life changed, I'd ordinarily never agree to go from being a W-2 employee to a 1099 contractor. But rather than outright firing me, my employer allowed me to move to a completely new city (Kansas City) to be with my girlfriend and still keep the same job--in a place where tech jobs aren't as numerous or as interesting as they were in Boston. The only condition was that I stay on as a contractor rather than as a salaried employee. My hourly rate as a contractor is roughly 30% higher than my hourly rate was as a salaried employee, and I can work from wherever I want--coffee shop, house, library, co-working space, etc. (I've used all four so far!) No problem even to work from a different city for a few days and visit out of town family, or take a road trip where I drive at night and work during the day.

I've heard that happen to a few of my friends too. The free-lancing thing can be a little scary, not knowing what's coming next, but I know a few people that went from salaried positions to contractors for their companies and make more money. And you get extra deductions, but pay more in taxes due to the self-employment tax (~7-8%?).

Good luck in your adventures!

Closer to 15% all said-and-done, depending on the state, but like you said, the deductions can make the effective tax rate lower than that.