Working Many Remote Jobs at the Same Time - Self Employment Ramifications

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Kandinsky
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Working Many Remote Jobs at the Same Time - Self Employment Ramifications

Post by Kandinsky »

I'm a software developer currently working a day job and also doing a bit of moonlighting through my LLC as a 1099 so it looks roughly like this:
  • W-2 Job = $141,000
  • 1099 Consulting = $115,000
I currently maximize my 401K, do backdoor roth conversions, and max my HSA. I get paid twice per month and I currently have my W2 withhold the extra taxes based on the calculator on the IRS website.

I was excited to discover as both an employee and employer of my LLC I can make employer-only contributions up to around $50K to a 401K. I setup a solo-401K through Vanguard which was easy enough but wondering how to calculate the employer contribution? I know it's a percentage of income but I never feel certain I'm getting the tax just right given the IRS calculator. I'd much rather contribute to the solo-401K to maximize it throughout the year rather than waiting until the end of the year to see the final amount.

Would it be worth it to get an accountant and have them start issuing me paychecks and restructure as an S-corp to mitigate some of the self-employment taxes? I've always been willing to roll up my sleeves and use TurboTax but I feel like things are getting more complex. However if it is simply a matter of using some calculators and a rule of thumb (X% per month can be contributed) then I am interested in learning more.
tj
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Re: Working Many Remote Jobs at the Same Time - Self Employment Ramifications

Post by tj »

your W2 is already above the Social Secuity max.

I can't imagine it's worth the cost of incorporating, paying an accountant and payroll service to partially dodge Medicare tax, but that's up to you.
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Kandinsky
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Re: Working Many Remote Jobs at the Same Time - Self Employment Ramifications

Post by Kandinsky »

I thought you could avoid a portion of the self-employment tax by paying yourself a paycheck so part of the income is just business income instead of self-employment income.
tj
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Re: Working Many Remote Jobs at the Same Time - Self Employment Ramifications

Post by tj »

Kandinsky wrote: Thu Aug 05, 2021 7:09 pm I thought you could avoid a portion of the self-employment tax by paying yourself a paycheck so part of the income is just business income instead of self-employment income.
But you are already over the max Social Security from your W2, so you'd only be dodging Medicare.

There's no such thing as "business income" and self employment income". The only difference between Sch C income and Distribution from an S Corp on SCh E is the Self Employment Tax...which for you is the Medicare tax because you are over SS Max.


I have to think you'd pay more to set that up than you'd save in taxes, it might make sense if you were bringing millions, sure.
tibbitts
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Re: Working Many Remote Jobs at the Same Time - Self Employment Ramifications

Post by tibbitts »

Kandinsky wrote: Thu Aug 05, 2021 7:09 pm I thought you could avoid a portion of the self-employment tax by paying yourself a paycheck so part of the income is just business income instead of self-employment income.
As far as I know the issue isn't "just business income"; it's salary vs. dividends. There may be more considerations/complications, some of which may be state-specific. This tends to be more of an issue for someone without significant W-2 income due to encountering contribution limits.
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Kandinsky
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Re: Working Many Remote Jobs at the Same Time - Self Employment Ramifications

Post by Kandinsky »

I will potentially take on more side work which will mean a higher income. Depending on whether I win the work I want to get, it could be as high as $30K of 1099 income per month at the extreme end.

I guess I may need to have someone take a look at my situation. I'm always reluctant to do so because if anything it feels like I just want someone to do my taxes at tax time. Not do accounting and charge me monthly for it. But I guess that would also help with the monthly contribution to the solo-401K dilemma.
harikaried
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Re: Working Many Remote Jobs at the Same Time - Self Employment Ramifications

Post by harikaried »

If you've had the 1099 income last year, you should be able to look at your Schedule SE for the details of Self-Employment Tax calculations notably for the lines near "Total social security wages and tips (total of boxes 3 and 7 on Form(s) W-2)."

With your W-2 Job, the additional 1099 Consulting income should only be subject to the 2.9% medicare tax of SE Tax, so around $3k. If the S-corp evenly splits reasonable compensation and dividend distribution, you would save on about half of that tax.
SuzBanyan
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Re: Working Many Remote Jobs at the Same Time - Self Employment Ramifications

Post by SuzBanyan »

harikaried wrote: Thu Aug 05, 2021 7:35 pm If you've had the 1099 income last year, you should be able to look at your Schedule SE for the details of Self-Employment Tax calculations notably for the lines near "Total social security wages and tips (total of boxes 3 and 7 on Form(s) W-2)."

With your W-2 Job, the additional 1099 Consulting income should only be subject to the 2.9% medicare tax of SE Tax, so around $3k. If the S-corp evenly splits reasonable compensation and dividend distribution, you would save on about half of that tax.
Just be aware that the salary you pay to yourself must be “reasonable.” Further, only the salary can be the basis for the Scorp’s employer contribution to a Solo 401k. An s-corporation owner can contribute 25% of their salary compensation to their 401(k) account up to a maximum of a $58,000 total annual contribution.

With these numbers:
Unrelated W-2 Job = $141,000
1099 Consulting = $115,000

As a sole proprietor, you can make an employer contribution of more than $22500 after accounting for about $3300 in total self-employment tax.

As a s-corporation employee with a salary of $65,000 (assuming that is reasonable), you could make an employer contribution of about $13000 and the self employment tax would be less than $2000.

These are just my broad stroke calculations for initial planning purposes and should be be verified before any action is taken.
mffl
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Re: Working Many Remote Jobs at the Same Time - Self Employment Ramifications

Post by mffl »

Yeah, and with the caveat that I'm not a lawyer or an accountant -- though I do have to make this reasonable salary decision for myself each year -- you might find it difficult to justify any of your income as not part of your salary if it's all 1:1 due to your direct efforts. If you had employees or something else other than one hour spent of your time = one hour of income, you'd have a better argument.

From irs.gov: "Wages paid to you as an officer of a corporation should generally be commensurate with your duties."

What else would be generating income in your S Corp other than your own duties/efforts? Doesn't seem to me you have an argument to take any of it as a distribution.
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Kandinsky
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Re: Working Many Remote Jobs at the Same Time - Self Employment Ramifications

Post by Kandinsky »

Thanks for the details everyone. I don't think I will be able to justify some of the income as a distribution since I am doing the work hour for hour to earn all of my income currently. Perhaps if my YouTube channel takes off or a SaaS product I build takes off, then I'll have a better argument due to scaling. :happy
GammaPoint
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Re: Working Many Remote Jobs at the Same Time - Self Employment Ramifications

Post by GammaPoint »

Congrats on the extra side income. I had a similar situation last year where I had about $80k of income from data science consulting on top of my W2. I used this calculator to help me figure out how much employer contribution I could do: https://obliviousinvestor.com/solo-401k ... alculator/. But I was fairly conservative because I didn't want to go over and so did a bit less than what the calculator suggested and then topped it off at tax filing time once I knew what the actual profits looked like after deductions and such.

May I ask how you are finding your clients? With my past work I had a connection in the industry who approached me, though now that that's over I'd be interested in finding more clients if the fit were good. But at the same time, my hands are a bit tied in that I don't want to be super public about trying to find additional work (it's not disallowed in my primary employment contract, but I don't want the extra scrutiny). I'm aware of sites like Upwork but they tend to be small jobs or at hourly rates much lower than what I was doing before.
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Kandinsky
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Re: Working Many Remote Jobs at the Same Time - Self Employment Ramifications

Post by Kandinsky »

Thanks for the calculator link! That helps.

I know what you mean about Upwork and the like. Those sites have been terrible in my experience because they are usually small mom and pop types wanting tons of stuff for small hourly rates along with constant check-ins to make sure they don't go over their small budget. It was exhausting for what little pay you actually get so I stopped using those platforms after a few jobs. Best to leave those for the kiddos in college.

I'm sort of in the same boat as you. It is frowned upon to moonlight in my W-2 but they know I have the LLC and I don't want to advertise further so I actually just apply for 1099 jobs through the various job sites now and I have a copy of my resume with my LLC as my current job and I set the understanding with the 1099 job that I have other clients to attend to so flexibility on meeting times is a must. At least that is my general plan for scaling up.
GammaPoint
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Re: Working Many Remote Jobs at the Same Time - Self Employment Ramifications

Post by GammaPoint »

Kandinsky wrote: Sat Aug 07, 2021 2:20 pm I don't want to advertise further so I actually just apply for 1099 jobs through the various job sites now and I have a copy of my resume with my LLC as my current job and I set the understanding with the 1099 job that I have other clients to attend to so flexibility on meeting times is a must. At least that is my general plan for scaling up.
Thanks for the detail, and sounds like a reasonable way to go. With regards to adding your LLC as your current job, I assume you have a LinkedIn profile where your current job is your W2? If that's the case, do you ever deal with questions about that? I would assume that before someone hired you for a 1099 that they would google you or look on LinkedIn first. Also, do you work closely with your client's other employees, or are you relatively isolated? Curious how that might be since in my longest running experience I was working directly at the Director level and didn't interact with the lower level employees whose work I was benchmarking and making improvements on. Happy to swap stories over PM too if you like. I really enjoyed my side hustle and am looking forward to getting back to it after our soon-to-be newborn is sleeping through the night a bit.
neverpanic
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Re: Working Many Remote Jobs at the Same Time - Self Employment Ramifications

Post by neverpanic »

Kandinsky wrote: Thu Aug 05, 2021 7:09 pm I thought you could avoid a portion of the self-employment tax by paying yourself a paycheck so part of the income is just business income instead of self-employment income.
Generally, yes, that is how it works, but though your side job is doing very well, you're talking about introducing complexity for a negligible savings.

Once you scale up - let's say your 1099 income 2x's your primary W-2 - now you've got a legitimate argument to make the S-Corp election and pay yourself a reasonable W-2 salary.
I am not a financial professional or guru. I'm a schmuck who got lucky 10 times. Such is the life of the trader.
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