Hi all,
My wife is a medical writer and just submitted her resignation for her W2 employer and will be started independent contractor work in next 1-2 months. I have a W2 job and we have been DIY for our tax/finance etc. We have come up with the following steps for my wife's transition, and would appreciate it, if you can all let us know if we are missing anything or would change anything.
1. Registered as a LLC with our state with my wife as sole proprietor, using a nice business name. Most of her clients will apparently require a LLC based on her inside industry knowledge, hence went down this route.
2. Obtained an EIN from IRS
3. In the process of setting up a business account with Keybank - We have worked with them for most of our personal banking so wanted to start with them, but know that there might be better options out there. Plan to have checking account for regular transactions and a savings account for estimated taxes, for depositing in 401k etc.
4. Opened a solo 401k at Vanguard, for rolling over her prior employer 401k and for future 401k contribution.
5. She designed a website for her clients and got a business email as well.
6. Have been tempted to use a CPA, but wanted to do this ourselves. So in the lookout for accounting software and tax software to keep tabs of any spending, and paychecks and for estimating taxes. We have previously always used Turbotax for personal tax; so planning to use Quickbooks and Turbotax business download.
Thanks all in advance.
New independent contractor
Re: New independent contractor
Quickbooks is the "industry standard" so if you decide to hire a CPA or "accounting/tax guy" later, they will be able to use it directly.
Track business expenses methodically. It sounds like there might not be much "business travel" involved in a medical writing job, but if there is "actual expenses" is often better than the standard mileage deduction. Check the math.
The home-office deduction will be useful, investigate it carefully.
Check your insurance coverage, home owners may want to know if you're operating a business from the property, but if you do NOT meet clients in person at home and aren't doing heavy manufacturing they probably won't care much. Get an umbrella policy anyway.
Track business expenses methodically. It sounds like there might not be much "business travel" involved in a medical writing job, but if there is "actual expenses" is often better than the standard mileage deduction. Check the math.
The home-office deduction will be useful, investigate it carefully.
Check your insurance coverage, home owners may want to know if you're operating a business from the property, but if you do NOT meet clients in person at home and aren't doing heavy manufacturing they probably won't care much. Get an umbrella policy anyway.
Re: New independent contractor
Looks like a good plan; almost exactly what I did when I started my solo consulting business.
1. You may need to get a state tax ID and register with your city/county as well.
3. Get a business credit card, if only for the signup bonus. Chase Business Ink Unlimited works for me and has no annual fee.
6. I use Wave (waveapps.com) because it’s free and Quickbooks seems like overkill for my very basic needs. Haven’t had a need for a CPA except when I was refinancing my mortgage — bank wanted a CPA to sign off on my books, which only cost a few hundred dollars and they were able to work with an export from Wave.
A few other things I learned along the way:
Errors and omissions insurance is fairly inexpensive (~$500/yr for me). I have a client who requires me to carry it, which is why I bought the policy in the first place, but it seems like a good idea in general if only to cover legal fees in case of a dispute.
I live in a no income tax state, but recently realized thanks to another Bogleheads thread that I’ll need to file a California return this year for income from a client in CA. If you’re a W-2 employee working for a California company but never step foot in CA, you don’t owe CA tax. But if you’re a 1099 contractor, you owe income tax if the “benefit of the service is received” in CA regardless of where the work is performed. In short, you’ll want to look into income tax rules for your state as well as the states your wife’s clients are based in.
1. You may need to get a state tax ID and register with your city/county as well.
3. Get a business credit card, if only for the signup bonus. Chase Business Ink Unlimited works for me and has no annual fee.
6. I use Wave (waveapps.com) because it’s free and Quickbooks seems like overkill for my very basic needs. Haven’t had a need for a CPA except when I was refinancing my mortgage — bank wanted a CPA to sign off on my books, which only cost a few hundred dollars and they were able to work with an export from Wave.
A few other things I learned along the way:
Errors and omissions insurance is fairly inexpensive (~$500/yr for me). I have a client who requires me to carry it, which is why I bought the policy in the first place, but it seems like a good idea in general if only to cover legal fees in case of a dispute.
I live in a no income tax state, but recently realized thanks to another Bogleheads thread that I’ll need to file a California return this year for income from a client in CA. If you’re a W-2 employee working for a California company but never step foot in CA, you don’t owe CA tax. But if you’re a 1099 contractor, you owe income tax if the “benefit of the service is received” in CA regardless of where the work is performed. In short, you’ll want to look into income tax rules for your state as well as the states your wife’s clients are based in.
Re: New independent contractor
Both the posts above mine offer some good advice.
(With the exception that I don't have any experience and can't comment one way or another on Wave).
I would add that handling taxes on your own isn't that bad but using a CPA for the first year to crosscheck wouldn't be unreasonable either.
(With the exception that I don't have any experience and can't comment one way or another on Wave).
I would add that handling taxes on your own isn't that bad but using a CPA for the first year to crosscheck wouldn't be unreasonable either.
Re: New independent contractor
What kind of business expenses will there be? I would not think a lot. Get a business credit card and buy everything with that, save receipts and download activity to a spreadsheet or use a simple app to track expenses.
Work through how you plan to handle mileage for tax purposes, if your home is going to be your principle place of business. Have some sort mileage tracking log.
Work through how you plan to handle mileage for tax purposes, if your home is going to be your principle place of business. Have some sort mileage tracking log.