So the start-up company I work for isn't doing too well. Don't tell the venture capitalists. So I'm getting a fun-filled 2-day vacation every week for the foreseeable future, albeit without pay. Since I can ill-afford a 40% pay cut at the moment, I've been scrambling to make up the difference. Luckily, I was recently able to line up a consulting gig at a local university that will somehow miraculously pay me almost exactly (maybe more, maybe less, depending) what I'm about to lose. I've done a little consulting before, but just as an extra thing, nothing this substantial.
So my query for you folks that have some experience here is what should I take into account going into this deal? My main job will still pay insurance, so that's covered, but 401k matching is dead. I've heard that I should count everything that goes into the consulting job as a tax deduction, but what other tricks do I need to know? I've even been told that I should set up an LLC to really go whole-hog.
Any tidbits of knowledge would be greatly appreciated.
#2
Tinwhistler
taxes.
Don't forget to pay your quarterly taxes on the consulting money.
Trust me on this.
#3
Adammon
Pay your taxes. Viddy importante.
If this is just part-time consulting, don't start claiming everything like your house, your car, etc. otherwise you have to pay extra on insurance, and more taxes! An LLC is probably overkill but there's no reason you couldn't set up a sole proprietorship.
#4
strawman
Extra insurance isn't that much.<br /><br />
When I first consulted with the University of Michigan, they were very lax - they just needed a bit of information, and didn't go heavy on the constant requirements.<br /><br />
My most recent gig, though, put me through the wringer with requirements about business insurance, formal quotes, etc. <br /><br />
So even though you've 'got the job' wait until the accounts payable department gets ahold of you before you count on that money. Also, every business and institution I know of deliberately waits to pay for 30 days beyond the time the invoice is submitted to accounts payable - not from the time the invoice was given to the person you are actually doing the work for.<br /><br />
There's no need for an LLC - a sole proprietorship is fine unless you believe the university is sue-happy and may come after you if something goes wrong in your project.<br /><br />
As long as the university doesn't require business insurance (liability, errors and omissions, etc) then don't get it, but don't be too worried about it if you need it. I'm paying $500/year for liability alone ($1M per incident, $2M total), and it's sufficient for a big university like UofMichigan.<br /><br />
If it's going to pay more than $1k, you ought to either pay your taxes as you go, or put a very large chunk away for savings and don't use it until you've paid your 1040 in April '10.<br /><br />
It'll be fun, though, so go for it!<br /><br />
-Adam
#5
Jake
I've consulted for the university before, but on a much more limited basis, so I'm familiar with the glacial pace of actually letting go of their money. This will be a fairly substantial chunk of change (I'm just that good), so I'm just making sure I'm covering all the bases I should.
I might look into the sole proprietorship.
#6
Dave
The difference between sole proprietorship and the LLC only comes in if you get sued. SP means you are liable for the whole enchilada, but is less of a tax burden.
#7
strawman
The nice thing about Sole Proprietership is that as long as you want to work under your own name, you don't have to file diddly squat. You can say, "I'm a sole proprieter!" and poof! you will be one.
If you want to use a different name, you'll need to do a DBA.
-Adam
#8
Jake
So "Superman McHugecock's Excellent Consulting and Oriental Massage" might have some paperwork associated with its formation. Nevermind, then.
The difference between sole proprietorship and the LLC only comes in if you get sued. SP means you are liable for the whole enchilada, but is less of a tax burden.
In addition to that, as an LLC, you'll be double taxed. Income made as the LLC gets taxed and then your income as an employee of that LLC gets taxed. Sole Proprietorships only get taxed once.
