Learn me being an independent contractor

I've always worked as an employee, but may get a new gig as an independent contractor. 
 

I think I understand some things, but want to be sure. Then there are some things I need to learn. 
 

I understand I'd have to pay quarterly estimated taxes and that I'd have to pay all of my Payroll taxes. I'm assuming cresting an LLC is the easy route. It seems like being an LLC, but being taxed like an S corporation may be the way to go. 
 

Luckily, health insurance is covered, so that's not a factor for me. I will lose out on paid holidays and PTO. 
 

What about a 401k or SIMPLE IRA?

What types of things can count as business expenses?

I plan on finding a tax person to talk to and hire to help sort things out. If taxed as an S corp, how much can I not pay myself and then have the LLC give me as a distribution? How is that money taxed?

Anything special needed to deal with per diem?

I assume the LLC needs its own bank account?

What other things do I need to consider?

Help me Obi Wans, you are my last hope. Thanks. 

Find a good CPA for the tax questions and have them refer you to a lawyer who can answer the LLC questions. 

LLC will need it's own bank account, plus here will be other expenses associated with maintaining and running one. It is a separate legal entity after all.

All good questions. 
 

Ask an accountant, and a lawyer. Not the Internet. 
 

(I'm not just blowing you off. Every situation is unique, and you need professional guidance from someone familiar with your local guidelines, and the very specific things of your individual circumstances)

Find an accountant. They are worth every penny. I deal with a firm that I dump everything on at the end of the month. She fills out the forms and tells me where to send any checks and when to send them. Government forms make me cross eyed. She has probably kept me out of jail. If you do this ignore everything that follows. The accountant will help you decide the best way to set things up.

Contract employee, or contractor?

If the first, you will probably not need to form a corporation. You will pay quarterly estimated taxes and then you will get a 1099 at the end of the year and will pay taxes on it. Keep in mind you will not only pay your share of any taxes, you also get to pay the share that your employer used to pay. If you are going from employee to contract employee make sure it comes with a pay bump to cover the additional costs. This assumes you are working for a business and 100% of your work is for that business. 

If the latter and if it's just you, I'd probably go LLC taxed as a sole proprietorship. Otherwise you will be paying business taxes and personal taxes. My business is set up as a LLC but taxed as a partnership. All income taxes pass through to me and my partner. This cuts the paperwork down by 50%. The only reason I would form a LLC is if you are going to be assuming some personal liability due to the business you do.

So, unfortunately taking my current hourly rate and bumping it up to account for things that I am losing is not an option or I will price myself out of a job.

The good news is, once I consider the additional 6.2% Medicare and SS taxes I'll have to pay, plus the 10 hrs/month of PTO I'll no longer get, plus the 10 paid holidays I'll no longer get, plus the 2% company contribution to my retirement account I'll no longer get, plus the reimbursement for my internet and cell phone I'll no longer get, but adding in the per diem I would get, I would only have to work 46 hours a week for 50 weeks to come out where I am now working 40 hr's a week. The good news is, if I can look at it that way, is that I expect 50-60 hr/week will be more typical, so I may end up making a little more money, but just having to work longer and harder to do so.

Thanks for the inputs so far.

In reply to T.J. :

Honestly, that doesn't sound that great to me. Is that with an existing employer or a new gig?

My take on this is that you do increase both your risk (even easier to get rid of a contractor than a full time employee) and take on expenses that your employer used to pay, so you should be compensated for that.

I understand that while you​ should be charging more as an independent contractor, it sounds like you're saying that the market won't support that. 

I've been there. Money coming in, even if it's less then before, it's better than no money. 

I worked as an independent contractor doing relief work for a few years. As has been said here already, you need professional advice.

In reply to BoxheadTim and Floating Doc :

Yes, I agree it is not ideal, but it is what it is. This is not a career move I'd make on my own accord. Come to think of it, this is the first time that I've had to change jobs not on my terms  

My current job which ends in a week, has been great for 7 years. I'm not too excited about having to work harder for less compensation, but it beats not working which seems to be my other choice at this time.

Understand about the professional advice. I wasn't trying to replace that with this thread, just trying to learn a bit more so I know enough to ask the right questions and consider all the things that others may have encountered.

In reply to T.J. :

Ugh, well that sounds like a bummer. Will you be working from home, or going into an office? I know I've spoken with my CPA about "hey can I write off mortgage/utilities/etc, since I have a home office?"

The answer was basically, you better not even have clothes in the closet of that bedroom you're using as an office, because it's no longer 100% office space. Also told me, trying to get that 10% write off raises huge flags for the IRS to possibly audit you.

I'm not here to claim to this is correct or incorrect or anything like that, just relaying the advice I've been given by my CPA. YMMV

In reply to T.J. :

Understood, been there, decided food on the table while working harder for the same money (or in my case, less money) beats no food.

OTOH - and this is where the CPA comes in - you may actually be able to offset that somewhat by deductions you might be able to claim as a contractor that you were not able to claim as an employee. This may well offset some of the additional cost.

In reply to z31maniac :

I've worked from home for the past 7 years, but if this new job pans out, I will be working on site.

So, looks like this thread was all for naught as it looks more likely I will be a W-2 employee at this point. We'll see how things work out in the next week or two, but I'm hoping to be earning a paycheck in July.

If they are setting your schedule and directly controlling what you do during the work day, they will probably have to make you a W2 employee. Labor laws are pretty specific about what an employer is allowed to do with contract employees. 

Sounds like someone in payroll just figured out they were about to run amuck of Federal labor laws.  You don't get to just pay people how you want to, send them a 1099 and call them self-employed (although many companies try).  There are clear guidelines. 
 

Having said that, there is also a caution here. Your company is struggling with expenses, and looking to cut payroll expenses. That means somebody's job is gonna be gone soon.  Either they will figure out how to hire real subcontractors and let some staff go, or they will figure out how to demand more output from the staff, and let some staff go. There isn't any way to know if you will be one of the ones they let go.

The other possibility is that they modify everyone's income.  Change insurance coverages, across the board pay cuts, reduce benefits, etc.

I'm not trying to be a negative Nancy. I'm just trying to help you realize what is coming and prepare for it. These are classic maneuvers for a company that is struggling with expenses that are too high. 

In reply to SVreX (Forum Supporter) :

No, that's not quite the situation in this case. 
 

The company I worked for gor the last 7 years has no more work for me and gave me a few weeks notice. The contractor questions were related to a different job with a different company. The update is that I have a lead for a different new job where I'd me an employee. This one seems promising and that is what I am persuing. 

In reply to T.J. :

Gotcha. Glad to hear it!

In reply to SVreX (Forum Supporter) :

I was probably a little too vague in my first post. Was just trying to keep some of the details out of it, so I didn't explain the situation very well I guess. All good.