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Independent Contracting - cellophane
the story of an invisible girl
renniekins
renniekins
Independent Contracting
I'm not really interested in going into business for myself. Business doesn't interest me, finding clients doesn't interest me, and I'd rather not have to take care of my own tax stuff, health care, and stuff like that. I like working for a company who'll do all that for me. Honestly I'm pretty clueless about how all this works.

All of that said, some people have been approaching me with temporary work, part-time work, or one-time work. If I wanted to do something like that, how would I go about doing it? I have no idea, I've always just worked for an employer, signed the paperwork they gave me, and then they just start sending me paychecks and stuff.

So I'm asking the internet, because the internet knows everything. If I wanted to be an independent consultant, even temporarily, what would I do? Do I need to apply for some sort of business status? Like if somebody says "we want to pay you for a week's worth of work", do I need to provide them with a special number or form or something to get paid? To deal with taxes at the end of the year?

I know there is something called an LLC, which I think protects me as an individual from debt or litigation incurred by my business, but I don't know if it's necessary. Do I want something like that for short-term work? Do I want something else?

Also if I find a company that offers a "contract for hire" position, I guess I'd need to turn myself into an independent contractor for awhile. This seems more complex than "here's some part-time work". Would this work the same as the above paragraph? Differently?

Anybody who feels like sharing their wisdom and experience, particularly how it works in Michigan, I'd be greatly appreciative.

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Comments
rmeidaking From: rmeidaking Date: October 21st, 2008 05:47 pm (UTC) (Link)
Call me tonight. I can fill you in on the basics, no problem. It's longer than an LJ entry, though.

Don't be afraid of the paperwork. You can do it. It's better to have the money, IMO. Self-employment is the way of the future, in any case, so you need to know about it.
renniekins From: renniekins Date: October 23rd, 2008 06:52 am (UTC) (Link)
I'd definitely like to talk to you, but probably easiest to wait 'til I get home from Colorado. Would monday night work? Can you email me your phone number?

Thanks!!
antisorbate From: antisorbate Date: October 21st, 2008 06:37 pm (UTC) (Link)
The state of michigan has a ton of stuff online about starting a business in Michigan. They have an interest in having successful business here, so they have done a pretty extensive job. Start at www.mi.gov.
Use Business and Economy link. Then Business Guidebook link. Then the Start a Business link. Probably far more information than you want, but if you want gritty information on all the types of corps, and what their purposes are, startup hints, business plans, etc, it's there.
renniekins From: renniekins Date: October 27th, 2008 01:16 am (UTC) (Link)
Excellent, thanks very much.
aiela From: aiela Date: October 21st, 2008 06:41 pm (UTC) (Link)
davehogg could give you a lot of information, since he's been contracting for almost 20 years now. :)
renniekins From: renniekins Date: October 27th, 2008 01:16 am (UTC) (Link)
Great, I'll pester him. (:
encorecrazay From: encorecrazay Date: October 21st, 2008 07:21 pm (UTC) (Link)
call me, I'll give you the info, won't even charge you.
pi3832 From: pi3832 Date: October 21st, 2008 07:27 pm (UTC) (Link)
I did it by going through a temp agency.
specialagentm From: specialagentm Date: October 21st, 2008 07:28 pm (UTC) (Link)
Outside of the business side, here's some good advice technical-wise (although this fellow does more system admin kind of consulting):

http://unixwiz.net/techtips/be-consultant.html

I have an entire library of books on the subject, you can pop over anytime to borrow them or at least get the titles so you can check them out of the library or something. They're all good to at least skim to get an idea of how to approach this.

renniekins From: renniekins Date: October 27th, 2008 01:07 am (UTC) (Link)
Great article, thanks for the link!!
mogwar From: mogwar Date: October 21st, 2008 08:41 pm (UTC) (Link)
Forming an LLC or corporation or other legal entity can protect you from legal liability, but it does cost money and I really suggest consulting a licensed attorney for help with the paperwork.

My experience is that programming tends to be fairly low risk, so the extra liability protection may not be necessary. It may also be possible to obtain some form of malpractice/liability insurance to reduce the potential risk of being self employed.

For tax purposes, your only requirements are to provide customers with a tax ID so they can report any payments made to you to IRS (only required if they pay you more than $600 and you are not a corporation) and to make estimated payments to cover the tax that will be owed.

In addition to your normal income tax, this will include self-employment tax (0.153%) which is equivalent to the employer and employee portions of a normal employee's payroll taxes (Social Security & Medicare). Estimated tax payments are only made quarterly, so this late in the year, none would be owed until January 2009, and if your earnings are low enough you may be able to adjust future tax withholdings to compensate instead of filing the estimated tax payments.

That's really all that's required for self employment. Everything else is pretty much optional.
matt_arnold From: matt_arnold Date: October 21st, 2008 09:13 pm (UTC) (Link)
How is one assigned a tax ID?
mogwar From: mogwar Date: October 22nd, 2008 12:17 am (UTC) (Link)
Oops, I meant to expand on that and I forgot. All American citizens already have a tax ID - it's your social security number. But if you don't want to share that information with the entire world you can apply for a FEIN from the IRS via form SS-4. It can be filed online at irs.gov. FEIN standards for Federal Employer Identification Number, but you don't have to be an employer to get a FEIN. Usually employers and corporations have FEINs, but I've never heard of IRS refusing to grant one to anyone.
matt_arnold From: matt_arnold Date: October 22nd, 2008 12:35 am (UTC) (Link)
Thank you very much. I would like to start selling products that I make through my website. Is there anything for you to add to your instructions in that case? If you have time. For instance, do I just save up enough to pay taxes on that income in my annual filing, or do I have to pay tax up front? And how would I know what percent the tax is?
mogwar From: mogwar Date: October 22nd, 2008 01:15 am (UTC) (Link)
Selling tangible goods is a pain in the ass, because you also have to apply for a sales tax license, and then charge and remit that tax. It doesn't actually cost you anything (and you get to be a wholesaler and not pay sales tax on the materials you buy) - your customers are paying the tax. But the paperwork and effort to track can be significant.

You also have to start tracking inventory, which is more complicated when you are manufacturing than when you are simply reselling. The basic formula is to add your purchases during the year to your beginning inventory and then subtract your ending inventory to get your cost of goods sold. You then subtract that COGS and other expenses from your gross receipts to get your net income.

After that point, the tax calculations are the same as for someone selling services: 0.153% plus whatever your expected tax rate is multiplied by your net income to get your federal income tax. State is roughly 3.9% times net income, and there may be local income taxes. These taxes generally need to be paid quarterly via form 1040-ES.
mogwar From: mogwar Date: October 22nd, 2008 01:18 am (UTC) (Link)
Oh, but the one benefit is that part where you have to report your tax ID to people so they can tell IRS how much they paid you? Isn't necessary when the payment is for tangible goods. Only a requirement for payments for services. But the tax ID may be necessary for proving your sales tax exempt status.
(Deleted comment)
renniekins From: renniekins Date: October 27th, 2008 01:15 am (UTC) (Link)
Cooool, thanks so much for your input. It really helps. Seems like an LLC might be a good idea if I want to consult a lot, but if I just want to take on odd jobs it's good to know I don't NEED one.

Can you recommend a local attorney who knows this stuff, if I do decide to file?
sandygood From: sandygood Date: October 22nd, 2008 01:38 am (UTC) (Link)
Hi R,

Everyone's already probably telling you all this, but I'll add my 2 cents. :)

You need:
1) A lawyer to help form an LLC (and you should bill through your LLC, and receive payment through your LLC. This prevents folks from going after your personal assets).
2) A bank account in the LLC's name. (Deposit payments into this account, and pay yourself out of this account).
3) A good tax person to help you plan for quarterly estimated taxes, and help spot deductions.

I can see it now... ALPACA PRINCESS, LLC...I bet it's not taken. :)
sandygood From: sandygood Date: October 22nd, 2008 01:40 am (UTC) (Link)
You might want to look into E&O (Errors and Omissions) insurance to protect yourself, although at your level an LLC might be enough.
renniekins From: renniekins Date: October 27th, 2008 01:13 am (UTC) (Link)
Heehee... I didn't even think about that: I'll need a company name! I dunno about the princess part, but maybe "Alpaca Software" or something would be fun. Hmmmm...! My pretend company name has always been "Karen's Computers Inc", whenever I have an irrelevant place that needs one.

Thanks for your input. (:
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