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Old 02-09-2013, 09:50 PM
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Sole-proprietor vs employee

I'm a web programmer in WA state. I'm single and in my mid 20s with no dependents.
Recently, I made a decision to move to CA and informed my employer.
After talking some time with my boss, I decided to stay working for the current company at least until I get super busy with an other company if i get employed with one. I got asked whether to continue working as employee or sole-proprietor (more of a vendor or contractor).

There's obviously difference in tax impact between the two options and I'm not sure which one suits best for me. I do have to take tax impacts seriously since the rates are enormous given the life style that i'm currently in (single, mid 20s, no dependents etc..). My boss suggested that i stay as employee because with sole-proprietorship i would get taxed business tax+income tax...

However, considering what i do for work, i do get to work as freelancer time to time and I intend to increase the volume of the freelance work after i move to California.

I hope you see my dilemma and can offer some insight..

Thank you in advance for any advice, comments, suggestions..

Last edited by mng1986 : 02-09-2013 at 09:53 PM.

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Old 02-10-2013, 01:13 AM
Join Date: Oct 2010
Posts: 5,258
"I hope you see my dilemma and can offer some insight..”============>I guess it is hard to tell; needless to say, it depends on many variables/personal taxation(financial/environmental) situations.NOTE: it is the distinguishable features of an IC( I mena as a self employer(a SP)) and anEE that will enable businesses to tell them apart;as an IC , you are responsible for paying 100% of your own taxes so called SECA tax; you have a certain amount of freedom to choose how your work will be completed and when you will do it. Businesses and providers need to work these details out on a project-by-project basis; you are hired for your experience and skills; the assumption is that you have no need of any type of training; a life of an IC involves marketingyourself and your business; a steady paycheck is not in an independent contractor’s vocabulary.You get paid on a project-by-project basis; an independent freelancer can show a business profit or loss; IC provides services on a temporary basis and are usually not important to the day-to-day operations of a business.
On the contrary, EEs are responsible for paying income tax, Social Security benefits, and Medicare; ERs pay half of Social Security, Medicare and unemployment compensation; EEs work at a specific time, usually a regular shift of 8 hours per day, and at specified locations; EEs usually receive on the job training; EEs are reimbursed for any business related expenses; EEs are typically paid weekly, biweekly or monthly; EEs work for only one ER An employee usually works for one employer and often receives benefits like insurance, pension, vacation and sick pay in addition to regular wages; An EE’s contribution to a business is ongoing.EVEN ERs must beware of the federal and state crackdowns on the use of independent contractors to avoid payroll tax problems and employment tax audits.SO, ERs need to know how the IRS determine who owes unpaid employment taxes and who doesn’t.

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