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spirozero

Question for U.S. freelancers

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interesting topic.

 

The way we (my wife and I do it) is that she is on salary which worse case scenario (knock on wood) can cover all our expenses, without tapping into our savings, but also without saving any real money. So, I'm part of the "shove 30% into the bank as soon as you get the check" tribe, that's just for taxes. I also make it a point to set some aside every month for our retirement, a vacation every now and then etc. The beauty of having one of us on payroll is that I as a freelancer don't have to worry about medical insurance, which can be a killer if you don't have access to a group policy. I send quarterlies to the IRS (almost regularly), and I have been penalized for the lack of regularity.

 

 

I had been considering forming an S-corp, but a couple of people were telling me that it's a pretty big mess to keep everything kosher, and that some of the tax savings are more myth than reality. A cameraman that I used to work with a lot suggested an LLC. To be honest I have yet to look into it, but he's not the first person to mention that his life got easier (and cheaper) since he went LLC. I have heard thought that the whole S-Corp vs LLC is sort of a controversial topic.

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interesting topic.

 

 

I had been considering forming an S-corp, but a couple of people were telling me that it's a pretty big mess to keep everything kosher, and that some of the tax savings are more myth than reality.

 

i would have to disagree, it's fairly straight forward once you get the hang of it... You can see the numbers of what you would have paid to ss and medicare if you had been a 1099. I would recommend seeing an accountant to get their perspective of what you should do.

 

The main difference between LLC and s-corp is payroll. I've also heard that LLC are better as partnerships where as the S-corp there is only 1 owner. I'd suggest to anyone to see an accountant and see what's best for you.

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So has anyone one seen a good guide to how to break down your freelance hourly rate by percent of expenses, etc. Like 30% for taxes, 15% for equipment, etc.? I've seen ones that help you calculate based on annual numbers, but no guides to what percentage of your hourly rate should be covering what.

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So has anyone one seen a good guide to how to break down your freelance hourly rate by percent of expenses, etc. Like 30% for taxes, 15% for equipment, etc.? I've seen ones that help you calculate based on annual numbers, but no guides to what percentage of your hourly rate should be covering what.

 

 

This might help you:

 

http://freelanceswitch.com/rates/

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I have a question for those of you who are incorporated/LLC'd or any of those. What happens when you go apply for a mortgage? What do they look at as income? and what if any particular hurdles have you encountered?

 

I ask because a few years ago when we bought our first place it was just my wife (w-2) on the app, the logic was, she makes more than enough to cover the loan, and the broker told us that not putting my income in would make things more straight forward, I just didn't bother asking exactly what that meant. This time around since we just relocated to a much more expensive area we will have to include my income, so before I'm curious to see what I'm going to be up against...

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I have a question for those of you who are incorporated/LLC'd or any of those. What happens when you go apply for a mortgage? What do they look at as income? and what if any particular hurdles have you encountered?

 

I ask because a few years ago when we bought our first place it was just my wife (w-2) on the app, the logic was, she makes more than enough to cover the loan, and the broker told us that not putting my income in would make things more straight forward, I just didn't bother asking exactly what that meant. This time around since we just relocated to a much more expensive area we will have to include my income, so before I'm curious to see what I'm going to be up against...

 

well, 6 months ago they would have given you a hi-risk, sub-prime mortgage without question....... <_<

 

today, you will just need to show that your company has consistent cash-flow history (credit worthy) and that you are able to pay yourself enough to cover the loan (plus your wife's income). they will probably look at existing outstanding debt for reference.

 

at least, that's how I understand it.

Edited by mamurphy

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My brother-in-law is a loan officer for Quicken. He says for sole proprietors / freelancers that they look for 3 years of steady income.

 

This has been a concern for me as well, as I'd like to move and eventually get another house wherever the hell it is that I am going.

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My brother-in-law is a loan officer for Quicken. He says for sole proprietors / freelancers that they look for 3 years of steady income.

 

This has been a concern for me as well, as I'd like to move and eventually get another house wherever the hell it is that I am going.

 

 

That's what I thought/feared. My income has grown over the last year or so, so I'm not sure they would count my "new" income; average it, or take the old "verifiable" one. I'm guessing that when you're in a situation like ours, your credit score doesn't have that much of a positive impact.

 

Our last place was bought under a "first time home buyer" thing, we got 100% financing, no PMI, and a pretty good rate. The other thing I'm wondering about, is that since technically this would be my first time, do I qualify for that sort of thing (assuming those plans are still around, which would quite frankly surprise me)?.

I'm guessing today's answer to all these questions will change a lot within the next months, on one hand they have to be careful not to make the same mistakes, on the other, they can't just stop lending money.

 

 

ETA.. I found this, not very encouraging...

 

http://www.mytwodollars.com/2008/09/02/qua...s-a-freelancer/

Edited by eley

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In the U.S. you would have to pay quarterly taxes - not monthly, if you are incorporated. This means paying a portion of your estimated income for the year. If you aren't incorporated - I am pretty sure you are like everyone else - once a year.

 

 

You're supposed to pay quarterly if you are self employed, regardless of your status. My accountant said so anyway. And my accountant knows everything. so there.

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You're supposed to pay quarterly if you are self employed, regardless of your status. My accountant said so anyway. And my accountant knows everything. so there.

 

I may benefit by knowing your accountants name.

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You're supposed to pay quarterly if you are self employed, regardless of your status. My accountant said so anyway. And my accountant knows everything. so there.

 

there is no penalty if you pay all estimated taxes before January. So...quarterly is just really a strong suggestion by the people who want your money.

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there is no penalty if you pay all estimated taxes before January. So...quarterly is just really a strong suggestion by the people who want your money.

 

My accountant knows everything except for that.

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The first thing I would do (If I were in your shoes) is consult with a accountant, and assess your current situation.

Accountants, Lawyers, so on will provide you with much needed information such as state and federal tax information and tax laws, plus all billable hours from your accountant/lawyer are "WRITE OFFS."

Accountants will help inform you what you can and can not write off, which is key, write off everything you possible can, Legally

 

The lovely world of US business is you pay tax on your profits.

 

(annually example: Yearly Net Income $4000 - Write-Offs $1500 = $2500 total profits which are taxable)

 

Freelancer is just a fancy :) word for sole proprietor which is a type of business entity. Sole Proprietor, LLC, S-Corp, C-Corp - each entity have different benefits and different requirements. Research them and talk to your accountant about them if you decide that route.

If you are a city dweller you may want to look into small towns around your city for accountants, they may be more affordable than many inner city accounting firms, plus you will more than likely have a stronger one on one business relationship with a smaller firm.

 

best of luck

sm

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I'm basically a 1 man shop, although i do have a fairly full time employee who's been here for several months.

 

but i've been an S-corp going on 4 years now. works out fine. couple thoughts:

 

1. have an attorney do the paperwork. but find a cheap attorney. i paid just over $500

 

2. find an accountant. my first accountant said taking dividends was borderline illegal. my current says they are legit, and he's not a shady guy. as someone else stated - you are required to pay your self a salary that is typical of what you would be getting paid. My accountant has told me that distributions should never exceed your salary per year - which is the real red flag. he's also told me that technically the irs could claim i should not be taking distributions, as my fees are gathered from man hours, and not from the sale of inventory etc. i don't know the technicals, but he basically stated that if the irs can prove that you make all your money basically from billing yourself out, then you might get in trouble. however i do 3d animation for a living, so you can bill for computers that sit around and render. i can be watching a movie and making money. so he said that was totally legit. truly is it? don't know actually. don't really care. i pay my accountant maybe 1500/year for doing my business taxes and my personal taxes (yes you have to do both). this is well worth it to me.

 

3. as an S corp you will save a few bucks in taxes (a few), but what you save you will probably spend in other crap. if you have employees you need workers comp. an office? you need business insurance. you have to pay for a payroll service or figure it out. you need an accountant. you pay the state each year. you pay the city. bla bla bla.

 

4. when using a "freelancer", realize the state won't consider them a freelancer unless they are a truly certifiable independent contractor. i found this out the hard way. i've had people in for a weeks work, and had them sign IC agreements, and they still filed unemployment. so, everyone is considered an employee pretty much. which means you will be paying part of their taxes, running them through payroll, etc.

 

5. S-corps shield you incase you get sued. some other entities do as well.

 

6. Loans. I was able to get a nice loan about 3 years ago and had only been in business a year maybe. I know that banks will want at least 2 years of W2 statements from your employer (your entity). after 3 years, you are pretty much fine.

 

7. taxes. there is so much. a ton, or paperwork with taxes, and with payroll it's enough to make you sick, but refer to #2 above, and you will be fine. i pay quarterly.

 

8. write offs. Don't forget you can have write off's in a business.

 

9. Cashflow. i try to keep as much money in the business as i can for unexpected hard times, etc.

 

If i were to do it all again - i don't know that i would choose S-corp, as i don't know all the ins and outs of all the options. but it's worked out pretty well.

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