My topic for the month was changed. I wanted to stop and cover this topic. Contractors and consultants are business owners. I was reading a thread yesterday about a man seeking bookkeeping. You know this touched home because I am an Accountant. Although an accountant is different from a bookkeeper, here's my blog expanding on that topic "Deciding Between An Accountant and a Bookkeeper", I offer bookkeeping services. I could not believe what I was reading as I watched multiple business owners post how low of a price they pay for their bookkeeper, and I was blown away.
What I saw is that most business owners treat independent contractors or consultants as employees when it comes to paying our fees. Sadly many contractors or consultants do not consider themselves contractors either. Bookkeeping is a skilled trade, and if you are not an employee, you are a business owner. One person can own a business. I wrote another blog about the differences between a contractor and an employee. Blog: The Differences Between an Employee and an Independent Contractor/Consultant." One person can own an LLC - Limited Liability Company or a corporation (C-Corp or S-Corp.) We think a corporation means it has to be a large business, but even a very small business can be a corporation. Your business structure is for your legal protection, and it determines your tax and organizational process needs.
A person that operates without one of the other business structures is a sole proprietor. So proprietorship is still a business structure with less legal protection for your personal assets. If you prefer to remain a sole proprietor that's alright too, you don't have to organize under one of the other business structures. You still need to file for a federal tax ID number or better known as an employer identification number (yes, even if you do not have employees). Also, you will need to report the business activity on Schedule C of the 1040 and submit a W-9 to your client for reporting on 1099. If you are consulting or contracting for a former employer, they are now your client. Read the blog: LLC, Corporation or Sole Proprietorship...3 Simple Tips to Choose a Business Structure
Be careful when you consult for a former employer. Make sure you are truly a consultant or contractor. Also, increase your pay because you are not a business owner, and you are responsible for your taxes and benefits now.
Are you a signed up for one of my Ask The Accounting Membership plans? Perhaps, you are saying, what is that? Well, it's group, recorded business training on accounting, business processes, taxes, money management, software training, and more.
We will cover more detail this month. Click here to learn more.