Contract vs FTE (Full-Time Employment Lecture Notes
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This document serves as a primer on the differences between contracting and full-time employment, detailing tax implications, liabilities, and rights associated with each. It discusses the rise of contract W2s, highlights the advantages and disadvantages of being an independent contractor, and offers guidance on tax preparation. The document emphasizes the importance of understanding these roles and consulting professionals for tax-related decisions.
Contract vs FTE (Full-Time Employment Lecture Notes
- 4. Connect to Me: LinkedIn - Open Networker (LION) I Never IDK (I don’t know) or Spam connectionrequest 10K+ DirectConnections 1,300+ Recruiters in network (mostly Dallas area)
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- 7. DISCLAIMER Speak with a licensed or bonded professional: ▪Attorney – Corporate or Personal Tax ▪CPA – IncomeTax ▪Accountant – IncomeTax ▪Bookkeeper – IncomeTax ▪Local tax preparation company representative – vendors listed toward the end ▪Tax-card holders (AKA Enrolled Agents or EAs) – IRS Licensed, Unlimited Representation Resume Psychology Copyright © 2016 Dirk Spencer
- 9. Contracting VS Full-Time Contract 1099Consultant Contract W2 Consultant Full-Time Employee (Permanentis not a legal designation)
- 10. Contractor Defined … is a person who contracts to perform services without the legal status of an employee...
- 11. There is no permanent Stop using this term. It may scare off potential employers
- 12. Full-Time Employee Recourse or remedy begins with HR & company policies
- 13. Contract Recourse or remedy via court action and or mediation
- 14. Contract 1099 Overview You: Pay the income taxes Manage the tax withholding Estimate tax withholding amounts Make the tax withholding payments Salary payment initiated by invoice
- 15. Contract W2 Overview You still pay the taxes! The company: Manages tax withholding Tax payments to the IRS Salary payment requests are done internally with email, spreadsheets or payroll access It is mostly on them
- 16. The Rise of Contract W2 Payroll software packages make it easier to implement contract W2. No contractor income tax liabilities – ever.
- 17. Always Consult the IRS The 3 IRS Concerns No Matter the Job: Who pays the taxes How taxes are calculated Who pays the withheld tax
- 18. Do I Have to Incorporate?
- 19. Risk of Not Incorporating Increased personal liability Higher tax withholding Higher tax payments No deductions for expenses
- 20. When to Incorporate 1. Allowable expenses net a lower income tax rate 2. Expense a force multiplier tool or service 3. You expect to hire other people as contract assets 4. You amass assets to control but not own
- 21. When NOT to Incorporate You seek a tax avoidance or reduction strategy
- 22. Truths of Independent Contracting You carry all of the risks and rewards You choose how, when, and where to work The Money is usually more You want multiple clients
- 24. Why Companies Hire Contractors Reduce employee labor costs Eliminate tax withholding costs Change the corporate tax rate Distribute company liability Reduced unemployment payments
- 25. Why Do Contracts More control over your income earnings More control on tax strategy You decide how much tax you pre-pay SEP-IRAs or Keogh Plans for retirement
- 26. Disadvantages of Contracting I No unemployment pay No unemployment insurance. No employer-funded workers' comp
- 27. Disadvantages of Contracting II No employer-provided disability No employer-provided paid time off Less employment statute protection
- 28. Disadvantages of Contracting III Injury claims filed in court Mediation agreements Risk of not being paid
- 29. Incorporation and the IRS Sole Proprietorships Partnerships Corporations S Corporations Limited LiabilityCompany (LLC)
- 30. Self Employed Tax File an annual return Pay estimated tax quarterly
- 31. What Contractors Pay Self-employment tax (SE tax) and income tax. (SocialSecurity and Medicare)
- 32. How to Make Quarterly Payments Form 1040-ES worksheet (Prior year annual tax returns required to complete)
- 34. Choosing aTax Return Preparer They have a Preparer Tax Identification Number (PTIN) Ask about their continuing education Check the Better Business Bureau CheckYelp! Discuss their fee structure Check for disclaimers on their fee-refund policy Ask about exclusions on their fee-refund policy Verify they will represent your case to the IRS
- 35. Tax Return Preparer Red-Flags Fees based on a percentage of your refund amount! They offer to have you sign a "blank" return!
- 36. Enrolled Agents – This Speakers Preferred Expert America's Tax Experts. The only federally licensed tax practitioners They have unlimited rights to represent taxpayers before the IRS http://www.naea.org for more information Typically former IRS agents Represent you in court with full rights and privileges
- 37. CONCLUSIONS It’s better to work than not. If full-time is available – take it. ContractW2 is the same tax headacheas being full-time. 1099 is time sensitive to filing Do not like 1099? Ask: “Can we make this contractW2”?
- 39. Q &A