[Discuss] how to contract correctly?

[blu at nedharvey.com (Edward Ned Harvey (blu))]

> From: Martin Owens [mailto:doctormo at gmail.com]
> Sent: Thursday, August 29, 2013 1:37 PM
> 
> On Thu, 2013-08-29 at 11:45 -0400, markw at mohawksoft.com wrote:
> >
> > Don't go W2! If you are an independent contractor, W2 defeats your tax
> > advantages. A W2 means you are an employee.
> 
> Can you explain to the lay person what tax advantages you're talking
> about?

There's definitely no tax advantage.  There is a liability advantage.

If you're an employee of a company, then they have to pay FICA, and you have to pay FICA (social security & medicare withholdings from your paycheck).  They have to provide unemployment and worker's comp insurance.  And as an employee of them, anything you do on behalf of the company can be held against them.

If you're a contractor, you create an LLC, you establish a business relationship between your LLC and the client.  You are an employee of the LLC.  (But you don't pay yourself a salary.  Ask your accountant.)  You're required to carry workers' comp and unemployment (but this is a frequently violated law).  Instead of paying FICA, you pay Self Employment tax, which is generally about the same as paying FICA.