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Doing some temporary consulting - is it worth setting up my own company?
I'm between jobs and doing some consulting work. Is it worth setting up my own company? I'm supposing the primary benefits would be tax-related
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5 Answers
The benefits are more than just tax-ralated or protection of personal assets, although those are very important. It is also a matter of image, credibility, and preparation.
Having a company, even if you aren't doing anything with it, puts you in the position of being "ready-to-go" should an opportunity come along. There is no harm in having a company and being employed somewhere else. You can never tell with that other employment will cease, or an opportunity to consult that comes along that is attractive enough to quit the full-time job and bcome firmly self-employed.
Having a company in your back pocket is one way to transition from being an employee to being self-employed.
I suggest you get a company name and put up a simple web presence that outlines your consulting capabilities. That way, should anyone be interested, you can send them off to the web site for more information. I would avoid using your own name as a company name if possile. Just because we're a one-man band doesn't mean we need to tell the world that.
If nothing else, get www.YourName.com and use that until you find a suitable company name. I was BrianJeffrey.com until we got the name Quintarra Consulting Inc.
I hope some of these ideas are of value. If I can be of any additional value, please contact me. I'd be please to point out some of the landmines that I avoided.
Yes, I would. You never know how long your consulting career will last in this economy.
Set up an LLC in the state you reside in. There will be no tax advantages to setting up an LLC in another state since you are subject to your own state's taxes. That would be a waste of resources.
An LLC can be taxed as a proprietorship, partnership (if more than one member), S-corp or C- corp. It will also look much more legitimate in the eyes of the IRS for claiming business and home office deductions. I have a series of tax tips videos on my website addressing the many tax questions you may have. Please visit http://TaxPlanningSTL.com
Not a lawyer, so this is NOT legal advice... But would suggest investigating setting up a Limited Liability Corporation (LLC) to afford yourself some degree of protection of your personal assets. Nevada, Wyoming and Delaware are typical choices for tax purposes.
Consult a lawyer to understand all the implications.
If you are a consultant, set up a company. Period. You can always continue to explore the advantages/disadvantages of different legal forms of organization. But, aside from tax implications and asset protection, you will - or should - want to appear to be a professional.
Now to the nit-picking . . .
Doing temporary project work while between jobs isn't really consulting. You need to decide whether to make a run at being a genuine consultant, or to be resigned to scraping up some odd jobs while engaged in the search. Whichever path you take, commitment, energy, and enthusiasm will be keys.
There's nothing at all wrong with pursuing employment that includes steady wages and benefits. But, you've got to be clear with yourself about whether you're making do during a job search, or are on the cusp of being an independent, entreprenurial consultant.
This is not legal advice, but rather personal experience. And within this experience I have found that unless you plan on continuing long-term in the consulting profession, it is not worth the costs associated with setting up your own company.
Four quick comments:
taxes--in setting up your own company you will pay ADDITIONAL "self-employment" taxes.
protection for your personal assets--if you set-up a company make sure that it is an "LLC" so that any legal issues that arise are restricted to your company assets and not your car, house, investments, etc.
EIN -- Employer Identification Number--You will need an EIN for tax filing reasons. Go to: www.IRS.gov to obtain one.
License--be sure to license your company in the State and County that you reside in. Some cities require licensing as well.
I have found that working as a 1099 subcontractor has strong benefits as well, which is worth investigating. S-o-o-o....The best advice that I can offer is to seek legal advice ASAP.
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