W-2? 1099? Corp-to-Corp? What's a new software consultant to do?
Submitted by Linda Coleman on Tue, 2006-07-11 13:36.
Pretty much as long has there have been outside consultants, they have been asking this question: W-2? 1099? or Corp-to-Corp?
For the unintiated, any new consultant needs to determine how they will organize their business. And these are the usual options people talk about. You would think it's a pretty straight forward calculation, but it can really become quite complicated.
I made a new posting, Consultants: W-2, 1099 or Corp-to-Corp?, that goes into some detail about the issues you need to consider. Each option has its own advantages and drawbacks. As with most things, it's all about the trade-offs.
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Linda, This is a fantastic
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.
re: LLC or S Corp
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
Linda, This is a fantastic
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.
Recruiting Firms
Hi,
1. That really depends on the compensation package you negotiate with the recruiter. The commissions are wages, just like the hourly wage, and subject to all employment taxes. There's no tax advantage to paying commission versus wages.
2. I'm not sure I understand the question. If you mean the how will the new income interact with your salary from your FT job... the net income (or loss) from your business will flow to your personal tax return. It will be combined with your salary plus any deductions to arrive at your taxable income. You pay income tax on the net income of the S-Corp at your personal marginal tax rate.
3. No, your employees can be anywhere. But if it's a US S-corp you'll be paying tax on the net income on your federal tax return. If your H1B status changes and you move overseas, the income from the S-Corp will likely be US source income & you will have to pay US taxes on that.
Hope this helps.
L:)
Recruiting Firms
Thanks for the clarification. It was quite helpful.
Regarding (3) point - hiring recruiter/manager outside USA. So since I dont need to hire anyone in USA, I will probably hire someone in Canada/UK. I want to have head office in USA and can I show the expenses incurred in other country (taxes in other country + salary to my employee and deduct from my S-corp income here.
-- Can I hire OPT, CPT from the start date of company. I was told that I cannot sponsor H1B for 2 years after starting company, is it true. If so, can I hire H1B people who are already working in USA(and sponsor through my company)
Thanks
H1B
Hi,
On the first question, yes you deduct expenses incurred & paid in other countries.
Regarding OPT/CPT/H1B hiring & sponsorship, I just don't know. That's not my area of expertise.
L:)
LLC or S-Corp
Hi Rob,
1. An LLC is usually easier to setup. But an LLC can opt to be taxed as an S-Corp by filing form 2553
2. LLC is taxed as a sole proprietor by default, which is the same as 1099.
3. You can usually do it yourself by filing a form with your state's Secretary of State office. You're paying for expedited service for the higher price. Intuit's MyCorporation has a deal with prices starting at $99.
4. yes.
L:)