I wanted to address some of your misconceptions about being an independent contractor in IT. I have been doing it since 1996. The corp to corp rate you were quoted doesn't account for FICA taxes. Most firms will give you a W2 rate and a c2c or 1099 rate. The 1099 rate should be about 10% higher. They have additional expenses you won't, namely unemployment, worker's comp, and liability insurance. Some firms will also quote you "all inclusive" rates which require you to pay for travel. This can be a great boon if you manage your travel carefully. I usually estimate 35-40/h for a 40 hour week requiring air travel, but every city is a bit different.
1. Being independent makes you "expendable". Managers might not be as nice to you, and If the project gets cancelled, that means your paycheck gets cancelled.
No, it doesn't. You're already working for a body shop, you're expendable as a W2. The "safety" of a full time job is an illusion. Companies will drop you in a new york minute, and don't forget it. The only safety in the modern economy is in maintaining your marketable skills.
2. Being independent means you do work that you don't bill for -- marketing, getting contracts, doing your taxes, networking, etc.
This is true, but if you're not doing most of this for your W2 career, you're making a big mistake. It's true that you have to do a little extra work on maintaining a pipeline, contract management, etc.
3. The revenue would be much greater than my current salary.
This is why most of us do it :).
4. Due to self-employment taxes, I would pay almost double the social security and medicare.
Sure, but you get a self employed credit of half of that back.
5. I would have to pay for my own equipment and software licenses -- anywhere from about $1000 to $3000
I would have to pay for my own health insurance -- about $2500 - $3000
Yep.
6. Health insurance, business expenses, and maybe my car, could be deducted from my taxable income, I think?
Health insurance premiums are fully deductible if you're self employed. Check out this thread for business expenses:
http://forum.mrmoneymustache.com/reader-recommendations/freelance-resources/msg1000195For your car, you can deduct mileage. There are some gotchas to watch out for - keep a written mileage log and track the mileage of your car for personal use, you have to report that as well.
7. I don't know if I would have access to a 401k or equivalent if I went independent... How does that work?
You can open a SEP-IRA or Solo-k which allows up to $53k a year in contributions. There are some good posts on that here.
8. I didn't factor in anything for legal fees or fees associated with starting an LLC, mostly because I don't know if I would need to pay them or how much it would be.
My opinion is that an LLC is not worth it for software development. Create an S-corp and if you're worried about professional liability, buy liability insurance. I created an LLC in 1996 and wish I had done it as an S-corp.
9. Do I need to hire a lawyer to analyze/negotiate contracts? (I would be subcontracting)
Until you get some experience, I recommend you do. You sound very inexperienced and some contractual issues around limited liability and flowdowns from master contracts are A Big Deal. I handle most of this myself now, but I've been doing it a long time. I also know when it's time to call my lawyer and have him look at something.
The other thing I didn't see you address is payment terms. Typically independents are on a net-30 monthly payment schedule. So let's say you work March 1-March 31, you invoice on Apr 1 for March hours. The payment is due on Apr 30. That means that if the payment is on time, you have to bridge 60 days before you get paid. And most payments are not on time. Most of my clients pay in the net 45-ish range.