Independent Contractors | incorporation | consult

Independent contractor lawyers | Independent contractor incorporation | why should independent contractors incorporate?

Clients come to us for advice on the benefits of Incorporation if they are an Independent Contractor. We assist clients in leveraging their 1099 status and save with the added Liability protection. You don’t want to put your personal assets as risk. 

What is a 1099 Independent Contractor?

The IRS defines Independent Contractors as: "People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors. However, whether these people are independent contractors or employees depends on the facts in each case. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax."

Independent Contractors/ Self Employed Independent Contractors (IC): What do we need to know?

• Income for Independent Contractors are reported on a 1099 form  
  
• Any suit against an Independent Contractor can affect their personal assets unless they are Incorporated. 
  
• Independent Contractors are responsible for a Self-Employment Tax of 15.3%  on the first $117,000 of your income and 2.9% thereafter.
  

What options does a 1099 Contractor have in Incorporating?

When you are performing your duties as an Independent Contractor, you carry the liability of being sued for your actions or inactions for the work you perform. In the event of a suit, your personal assets are put at risk unless you  incorporate. There are two option typically available that are viable for Independent Contractors. 1. S-Corporation, 2. Limited Liability Company (LLC). 

Limited Liability Company

• By Incorporating as an LLC, you remove the risk of suitors reaching into your personal assets in the event of litigation 
  
• LLC, you have the option of an S or C election with the IRS. Hence, you can avoid double taxation by electing to be treated like an S-Corporation for Tax purposes. 
  
• Can reduce your tax liability (discussed below) (Similar to S Corp)
  

S-Corporation

Incorporating as a S Corp can reduce your self-employment tax depending on the amount you make. Self-employment tax covers all who earn a living for themselves. The self-employment tax is 15.3%. By structuring and proper allocation of income, you can reduce the total amount you will have to pay the IRS.

Example:

 If you are currently making 100,000 dollars, which is typical for an Independent Contractor in California. You will be responsible for almost $15,000 in self-employment taxes ($14,990 to be exact). By incorporating as an S-Corp or LLC, and by allocating proper income that a person in your position would get it can save you on the amount of taxes that you would owe. These savings can be serious. For instance, if we determine that your industry salary is $50,000 and you are making a total of $100,000. You would only pay self-employment tax on $50,000, which is $7495 instead of $14,990, you just saved $7495 in taxes with proper planning, not to mention the added liability protection.  

• The remainder would be a distribution which is not subject to the FICA Taxes, which is distributions going to Medicare and Social Security programs, a.k.a Self-Employment Taxes. 
  
• Other benefits include one-Participant 401K plans.  
  
  

We can help you structure your Corporation or LLC so that you can maximize your savings. Our service also includes helping you determine an appropriate salary to help you avoid IRS scrutiny, we will also perform a risk assessment on your business to help identify risks and provide proper mitigation tools if necessary. 

Independent Contractor Incorporation

benefits of incorporation if you are a independent contractor

need advice on incorporating as an independent contractor?

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