Advice needed
November 28, 2016 5:28 PM Subscribe
If you were starting out as an independent contractor how would you do it?
I work as independent contractor in the IT sector with a team I have been very familiar with for a long time. The independent part of the gig has been short so I am now looking at other companies and want to streamline (legally/tax etc.) the process and make sure I have it buttoned up and would like your advice/tips on what to look out for as an independent contractor (forms, agreements, things to watch out for, pitfalls etc.) based on your experience (either working with one or being an independent contractor yourself). Most of the contractor agreements I have seen are very company favored (instead of being more favorable to the contractor) so any links to contractor agreements would be helpful also.
I work as independent contractor in the IT sector with a team I have been very familiar with for a long time. The independent part of the gig has been short so I am now looking at other companies and want to streamline (legally/tax etc.) the process and make sure I have it buttoned up and would like your advice/tips on what to look out for as an independent contractor (forms, agreements, things to watch out for, pitfalls etc.) based on your experience (either working with one or being an independent contractor yourself). Most of the contractor agreements I have seen are very company favored (instead of being more favorable to the contractor) so any links to contractor agreements would be helpful also.
What ananci said.
I wrote So ya wanna start a business over a decade ago and at least some of it still applies. I believe incorporation is less important now than it was then, but "figure out what you need to survive" is still hugely important and one of the things that people seem to skip when starting on a new venture.
I ended up having a lawyer draft three different contracts I would propose for various types of jobs. Wasn't all that expensive as I went through the state's referral service which gets you a "starter rate" from a relatively inexperienced attorney. The work was still good, but he hadn't been out of school more than a couple years (a senior partner reviewed things, IIRC). I also used Nolo Press contracts as starting points, with my comments added, so I had a pretty clear list of what I needed for the contracts.
The final thing I would add to that list is "figure out your health-care." Costs have grown at an absurd rate since I wrote that, and I would put quite a bit of effort into figuring out the details of how I plan to pay for health-care, especially facing 40-60% annual increases in premium costs.
posted by DaveP at 3:46 AM on November 29, 2016
I wrote So ya wanna start a business over a decade ago and at least some of it still applies. I believe incorporation is less important now than it was then, but "figure out what you need to survive" is still hugely important and one of the things that people seem to skip when starting on a new venture.
I ended up having a lawyer draft three different contracts I would propose for various types of jobs. Wasn't all that expensive as I went through the state's referral service which gets you a "starter rate" from a relatively inexperienced attorney. The work was still good, but he hadn't been out of school more than a couple years (a senior partner reviewed things, IIRC). I also used Nolo Press contracts as starting points, with my comments added, so I had a pretty clear list of what I needed for the contracts.
The final thing I would add to that list is "figure out your health-care." Costs have grown at an absurd rate since I wrote that, and I would put quite a bit of effort into figuring out the details of how I plan to pay for health-care, especially facing 40-60% annual increases in premium costs.
posted by DaveP at 3:46 AM on November 29, 2016
Set up separate bank accounts for your business if you haven't already done so.
posted by Wild_Eep at 6:43 AM on November 29, 2016
posted by Wild_Eep at 6:43 AM on November 29, 2016
I would absolutely agree with everything already written. Particularly the figure out healthcare. Depending on the state - good freelancer plans used to be available, but largely seem to have gone away; also it's now generally more expensive to create your own "group" which was a good option a number of years ago in various states.
Work with a CPA - even if it's just for the first few years to figure out what you're doing/how to file correctly as a business. Even in lean years I've found my accountant's advice has more than paid for itself.
Other things that I've run into that might not be necessary at first:
- Get a re-sale certificate, so you're not paying sales tax on what is necessary to create what you're selling back to your clients.
- Sole proprietorship is a good way to start, eventually creating an s-corp can reduce your effective tax rate fairly significantly. There are a bunch of ins and out, maybe talk with your CPA about this in a year or two.
posted by stanleyhuff at 7:48 AM on November 29, 2016
Work with a CPA - even if it's just for the first few years to figure out what you're doing/how to file correctly as a business. Even in lean years I've found my accountant's advice has more than paid for itself.
Other things that I've run into that might not be necessary at first:
- Get a re-sale certificate, so you're not paying sales tax on what is necessary to create what you're selling back to your clients.
- Sole proprietorship is a good way to start, eventually creating an s-corp can reduce your effective tax rate fairly significantly. There are a bunch of ins and out, maybe talk with your CPA about this in a year or two.
posted by stanleyhuff at 7:48 AM on November 29, 2016
1. Keep a small, spiral-bound notepad in your car and record start/end odometer readings for every business related trip you take. You might be surprised how quickly those miles add up. They're deductible as a business expense.
2. Combine non-business errands during a business-related drive. Depositing a client's payment in the bank? Stop at the grocery store on your way home.
3. In addition to having a separate bank account for business, get a separate credit card (if you use one). Interest on that credit card account is deductible as a business expense. Investigate an affinity card (airline miles or whatever) so you get something more out of your expenditures.
4. Get in the habit of keeping - and making notes on - every receipt that might have anything to do with your business. If you (like many of us) push the envelope on Schedule C expenses, detailed records are your first line of defense. Your CPA will thank you.
posted by John Borrowman at 8:16 AM on November 29, 2016
2. Combine non-business errands during a business-related drive. Depositing a client's payment in the bank? Stop at the grocery store on your way home.
3. In addition to having a separate bank account for business, get a separate credit card (if you use one). Interest on that credit card account is deductible as a business expense. Investigate an affinity card (airline miles or whatever) so you get something more out of your expenditures.
4. Get in the habit of keeping - and making notes on - every receipt that might have anything to do with your business. If you (like many of us) push the envelope on Schedule C expenses, detailed records are your first line of defense. Your CPA will thank you.
posted by John Borrowman at 8:16 AM on November 29, 2016
Nth-ing that having a good accountant and business attorney is really important -- especially an accountant or attorney who have other clients in the IT sector. A tax attorney may also be someone you need sometime. There will always be situations that are specific to your location, your business, your client, your responsibilities for the project, etc.
I agree that Nolo has some helpful info that can serve as starting points. You might like the guide Working for Yourself: Law & Taxes for Independent Contractors, Freelancers & Consultants as a general reference; it may also help you formulate more specific questions to ask the accountant and lawyer. (The book also includes examples of contracts and invoices.)
posted by rangefinder 1.4 at 11:33 PM on November 30, 2016
I agree that Nolo has some helpful info that can serve as starting points. You might like the guide Working for Yourself: Law & Taxes for Independent Contractors, Freelancers & Consultants as a general reference; it may also help you formulate more specific questions to ask the accountant and lawyer. (The book also includes examples of contracts and invoices.)
posted by rangefinder 1.4 at 11:33 PM on November 30, 2016
This thread is closed to new comments.
Have a lawyer draw up a standard contract(s) for you to use. Online templates can be a good place to start, but you want to make sure you are including all the things you need for your particular situation.
Register your business as a sole proprietorship. Do not be fooled into thinking you need to create an LLC right away. Meet with a CPA asap to make sure you understand how to track income and expenses. Have them do your taxes for at least the first year. You will have to file quarterly, as well as pay "self-employment" taxes (ask your CPA).
If can can work on retainer, do so. If not, ask for at least half the estimate up front. Always always always have a contract, even if it's a friend, even if you've know them forever, etc. It will save much heartache in the long run. Anyone who won't sign a contract is probably planning to stiff you.
posted by ananci at 8:06 PM on November 28, 2016 [3 favorites]