January 8, 2008 at 10:24 am
I never did contracting before, but I'll be on a 1099 with my previous employer. How would I invoice them my work and how does that affect my taxes? Do I need to had a tax id? I'm not sure where to start.
Any advice would be great.
Thanks
January 8, 2008 at 10:36 am
I'm doing the same thing. My ex employer will 1099 me, and I will be expected to pay my taxes based on my total years salary. I invoice them using a simple template provided by Microsoft.
HTH,
DJS
January 8, 2008 at 11:53 am
You should really contact an accountant about this.
If you don't set it up right, tax penalties can be quite severe.
January 8, 2008 at 7:08 pm
Michael is quite correct... if the 1099's end up becoming your main income or they exceed certain amounts, you MUST pay estimated quarterly taxes... do consult a good accountant! If you don't, you may have to employ a good lawyer 😉
--Jeff Moden
Change is inevitable... Change for the better is not.
January 9, 2008 at 9:49 pm
Get a CPA, and you can deduct their fees on taxes.
make sure you keep track of all expenses in writing. And plan on filing quarterly taxes. Guess what you would owe for the year and fill out the quarterly form, send it in. That's what I do, has worked well and the CPA has blessed it.
Plus you're not looking for a large amount of $$ in april to pay what you owe. Pay as you go along.
January 10, 2008 at 1:16 pm
Here here on getting the accountant to help you set up the taxes.
that being said - if you're going on a 1099 basis, using your previous salary as a benchmark - you're shorting yourself some money. There should be a definite "bump" between what you were getting paid to be there 40 hours, and what you are now for giving up your spare time, etc.... Taxes, soft time, time off, benefits, insurance, licensing of your software - that stuff isn't free, so you better be getting compensated for having to maintain all of those things.
You're a contractor now - it will be healthy for both you and your client to starting thinking in those terms, so don't short-sheet yourself. Really - things ARE different now, so the switch needs to be obvious to all.
I'm doing that now - and I charge the client something in the range of 140% of what it used to be under salary.
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Your lack of planning does not constitute an emergency on my part...unless you're my manager...or a director and above...or a really loud-spoken end-user..All right - what was my emergency again?
January 11, 2008 at 6:07 am
You also need to discuss with your contractee how often you plan to invoice them and how long they have to pay you. This is VERY IMPORTANT. If you don't discuss it with them, you might get into a dispute with them about what is owed and when.
Also, it might not hurt to consult a lawyer anyway about possibly incorporating yourself. Find out whether it's better to 1099 for yourself or for a company that is you. There are tax benefits & downsides to both.
January 11, 2008 at 4:15 pm
Don't ignore the insurance aspects, either. You're not covered under the employers workers comp policy anymore, so if you fall down their stairs, they aren't obligated to pay your rate or medical bills. And, they can fire you on the spot as you lay bleeding in their stairwell.
January 12, 2008 at 9:04 am
Good point on the insurance. Be sure that you carry some. It's not that expensive, but it's required by some companies that hire you and it's a good idea in case something bad happens.
January 12, 2008 at 12:48 pm
We'll have to define "not expensive", because E & O insurance for a developer or DBA isn't cheap, especially when you're touching someone's production systems (even if not directly). Mine's run me upwards of an MSDN universal subscription per year (depending on the projects I've had to run).
I don't always maintain a lot of it, but I do try for a minimum. I've seen folks wiped out for a LONG period of time for something stupid done to another corporation's IP (what we tech-heads call "data").
Or - I'm going to need to talk to Steve's insurance man...:)
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Your lack of planning does not constitute an emergency on my part...unless you're my manager...or a director and above...or a really loud-spoken end-user..All right - what was my emergency again?
January 14, 2008 at 4:09 am
Question on the insurance issue. Are you guys just talking about health insurance or other kinds of insurance?
What if you're a FTE someplace else (with health insurance) and doing occasional contract work on the side? Do you still recommend getting a separate insurance policy?
January 14, 2008 at 7:47 am
Thre's other insurance. Workman's comp, payment if you get injured on the job, isn't provided. Possibly you could sue the company, but this is basic insurance that every business with employees is mandated to provide.
There's also disability. someone drops a monitor on your fingers and you can't type, you need income. Most employers provide this, but if you're on your own, it's something to think about.
January 14, 2008 at 8:04 am
I was referring to "Professional insurance" and what is often referred to as Errors and Omissions insurance. Professional is the one covering the server you might knock over; E & O is the one covering you when your program should cause an "ouch" to someone's data while working on their stuff. You really might care to consider it if you're working on someone else's systems for long periods of time, especially if you're diong this by yourself.
No matter how good your code is - you can still get sued, especially if you're in there fixing a timebomb of a system. Just being the last one in front of the keyboard when the system goes to hell might be why. For the same reasons you might want to incorporate (as in - keeping the books separate, and keeping your house if something goes "bad" and you get sued), E & O will save your bacon if your bacon is in the pan.
I've had more clients require Professional insurance coverage than anything, followed by Workers' compensation. Disability is your issue so they don't "care" about that.
The other ones are definitively critical as well - I just think of them as non-negotiable, so I kind of take them as granted. As outrageously priced as it seems to be - going without health insurance is, well - stupid with a capital S (when it's within your control of course). If you're employed at all - get covered and stay covered.
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Your lack of planning does not constitute an emergency on my part...unless you're my manager...or a director and above...or a really loud-spoken end-user..All right - what was my emergency again?
January 14, 2008 at 8:28 am
Ah, good one Matt. Yep, that's needed.
My training company recently sent someone to a large company and they required $1M of E&O insurance. It wasn't too expensive, a few hundred $$ a year, but it can be worth it if something goes wrong.
January 14, 2008 at 9:45 am
Another form of "insurance" that shouldn't be overlooked is a formal contract of some kind that spells out exactly what you will be doing for the customer. That avoids (some of) the finger pointing that will occur when/if something goes wrong. If you're only supporting the XYZ system, state that. If you're not touching the production system, state that. It could keep the lawyers at bay later.
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