Author Topic: Questions - Becoming a Contractor/LLC/Sole Proprietor  (Read 1340 times)


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Questions - Becoming a Contractor/LLC/Sole Proprietor
« on: August 28, 2017, 06:34:05 PM »
Hi all. I've read every MMM post and have been living FI for about a year now.  My biggest obstacle right now is paying taxes, (I see taxes as a cost, and quite a big one being single making a decent amount of money)

I'm a Mechanical Engineer and have about 5 years of experience, and an opportunity has risen for me to become a contractor.  This is an existing company that wants to hire me as an employee, but certain things (like not offering a 401k plan) make direct employment unrealistic for me.

What I am trying to figure out is what becoming a contractor really means and what type of costs and rules are associated with contracting work to a company, that I would be working for exclusively for the foreseeable future.

Things I know:

I will be the only employee of my company
I would invoice the company and they would give me a 1099

Being a Contractor costs:
health insurance
workers comp?
liability insurance?
self employment tax
income tax

Things I can roll into my hourly rate as a contractor:
base pay
social security tax
medicare tax
federal unemployment tax
state unemployment tax
medical insurance
dental insurance
pto/holiday pay
hardware/software my company provides

I found this article that has explained a little bit of it, but this feels like the tip of the iceberg.

Things I am unsure of:

What rules need to be followed to be legal.  As far as I can tell I just need to supply hardware and software (computer and programs), and the company can tell me what they want done and when, but have no control over when I work or how I work. 
A big question that comes up is working on site (in their office building) if there are any limitations on that, or what the workaround is.
What kind of company would I be? an LLC or a S Corp or Sole proprietorship?
Can I have an email address of their company?
Would this work out in my favor if I gross $100k per year?
« Last Edit: August 29, 2017, 07:14:35 AM by Hight3chredneck »


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Re: Questions - Becoming a Contractor/LLC/Sole Proprietor
« Reply #1 on: August 28, 2017, 07:10:33 PM »
You probably want to become an S corporation if you get your business ramped up and generating good profits.

BTW, the way you'd do this is to setup an LLC (maybe now?) and then you'd elect Subchapter S status effective 1/1/2018.

I've got a pretty rich FAQ on S corporations here:

If you want to estimate the annual tax savings you'll enjoy by operating as an S corporation, you may be able to use this (admittedly simple) online calculator I created:

Tip: If don't yet have a tax return to refer to get your self-employment taxes and your venture will make less than $130K, you can estimate your SE taxes by multiplying your schedule C profits by 14%.
My blog Evergreen Small Business
My free downloadable ebook: Thirteen Word Retirement Plan


  • 5 O'Clock Shadow
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Re: Questions - Becoming a Contractor/LLC/Sole Proprietor
« Reply #2 on: August 28, 2017, 10:39:51 PM »
As far as what you're unsure of, all of those items are up for negotiation. The two companies negotiate the terms and form a contract which controls all of those items you listed.

I worked for a company as a contractor to GE. When I worked as a contractor, GE provided a workspace on their property, they provided computers, IT support, an email address, everything. I essentially reported to the same manager as the direct employees so I was expected to be there during the same hours.

Also, I'm fairly certain you wouldn't receive a 1099. A 1099 is only when a company pays a person who is not their employee. In this case, your company is not a person so you wouldn't get a 1099. Your business would receive payment and your business would pay you.

I don't think you'd need liability insurance if you're providing engineering services. Even if you did get sued for some reason, your company would be sued and not you so you could only lose the value of your company and not what you personally own. Since your company would be just you and a mostly empty bank account, you wouldn't have much to lose. I am not an attorney though so don't consider this legal advise.