DaveWentzel.com            All Things Data

May 2011

Independent Consulting Summary

Here is a quick summary of things I learned setting up my own entity for IT consulting.  This list is by no means complete.  As usual, consult your own experts before making any decisions on your own.  

Issue W2 1099 LLC (pass-through taxation) LLC (taxed as S Corp) S Corp C Corp
least headaches especially if you don't care for accounting
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your clients need to file a 1099, which may be risky for them  
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you have lots of legitimate business expenses that can shield you from SE tax  
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provides you with the "corporate veil" to shield your personal assets from liability    
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simplest entity to set up and disband    
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subject to "self-employment tax"  
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some of this can be "shielded" by paying a reasonable salary and taking the rest as distributions some of this can be "shielded" by paying a reasonable salary and taking the rest as distributions some of this can be "shielded" (but not as much as the other two options)
requires you to handle your own payroll and payroll taxes      
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subject to Estimated taxes  
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possibly not/can be handled via increased FIT withholding possibly not/can be handled via increased FIT withholding possibly not/can be handled via increased FIT withholding
gets you the most deductions for fringe benefits          
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requires its own tax return          
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Shields you from Personal Service Corporation designation      
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can deduct legitimate business expenses  
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can save the most SE tax on health ins premiums      
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life ins premiums are deductible      
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(maybe)
You can save SE and FIT by hiring your kids      
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SIMPLE IRAs can save you a ton of tax      
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