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> After you pay the taxes out of your pocket, $45 an hour is no better
> than $30 an
> hour, really. Remember, you only pay 7.5% of your SSI as a W-2. You pay
> 15% as a
> 1099. Plus all the other taxes and, no, you don't get to write off that much.
> The government says it loves small businesses but it really doesn't.
Hi Sharon.
The government doesn't love any business. Government looks to business
and individuals for funding.
This thread has many statistics and advice. However, in my opinion,
too much of the thread violates one important rule. Free advice is
worth just that. That's not intended to be a mean response to just
you. However, each situation is different. Outside of the U.S., tax
advice is much easier to provide, as the rates are truly flat, and
difficult to avoid.
In the U.S. things are much more complicated, and there are many items
that individuals are not aware of (and that goes for many tax
preparers.) For instance, one-half of the self-employment tax is
deducted from gross earnings.
I would prefer $45 as an independent contractor to a $30 temp rate for
several reasons. In most temp arrangements you get no benefits. If you
do, then add the value back to the temp hourly rate. I suspect this
will leave you far short of the $45 figure.
If you are an independent contractor, then auto depreciation and
expenses may be fully deductible to the % of use for business. This in
itself is a major item if you factor in depreciation and other
expenses. It gets even worse this year as gas prices have doubled. As
an employee you generally don't deduct the cost of travel to your job.
As an independent contractor you have substantial deduction on
Schedule C, but this is only true if you keep records and substantiate
the deductions.
Also, don't forget things like self-employed SEP deduction above the
line. Temp employee does not have access to that.
It's very difficult to perform what-if analysis, as each person's tax
situation is vastly different. Each contract is different. One may
require significant liabilty insurance, while another will wave the
requirement.
So all things being equal, I'd rather have $45 per hour for seven
months, than $30 per hour for 12 months. However, that is just me, and
I realize there are other possible outcomes that will make each writer
happy.
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