UPDATE: This information is now outdated and the author makes no guarantee as to its accuracy.
Those who are (for all tax purposes) self-employed, fall into two categories: those who work for a marketing or sales organization (MLM, Real Estate, Insurance, Sales) as 10-99 contractors; and those who run a small business out of their home without any business license or business entity protection.
There is nothing illegal about these scenarios. The IRS is quite happy to allow people to operate a “business” without setting up a legal business entity. This is because the IRS will make more in taxes on that business income.
10-99 contractors have a great opportunity to pay less in taxes than any other group of people in society, but 85% pay more than 4 times what is necessary. Companies are finding it increasingly more convenient to hire 10-99 contractors in place of employees. It saves companies both money and hassle.
The government tries to collect approximately 15% in taxes from everyone. This covers Social Security, Medicare, and Federal Income Taxes. In addition to these taxes, 10-99 contractors and other self-employed business owners are charged a 15.3% SELF-EMPLOYMENT tax. That makes for a total of over 30% in taxes. That is far too much to spend. What can we do about this?
Creating a business entity such as an LLC or S-Corporation will eliminate that self-employment tax and create a situation to maximize deductions available to businesses only. 10-99 contractors have nothing to lose and everything to gain by setting up a business to pass their taxes through. It doesn’t take much time, energy, or effort. Most CPAs, accountants, and attorneys charge between $500 and $800 for the initial setup cost. JP Squared Consulting offers businesses residing in Utah this service for only $100.
Contact JP Squared Consulting at www.jpsquaredinc.com and click on the link for New Entities.
Jacob S. Paulsen