I am re-posting this Q because I want to pay twice for two different experts to respond given that there seems to be varying ways of figuring out the situation… I got a thoughtful answer from Lev but I can't figure out how to pay and continue with you? Lev, if you see this, please see my response and let me know how to pay and continue our discussion... In the meantime I would like one more opinion on this but Please do not give me accounting
101 info- this is a specific question about MY specific circumstances. Read the whole question before responding please. My Q is:
I recently was offered a one-year position working on a government
project. I was recruited for this position by a staffing company. I thought the position was a 1099 but found out yesterday that it is actually a W-4
. My question is twofold:
1. Given my specific circumstance (described below) my first question is: Should I accept payment through the W-4 (W-2
) as an employee of the staffing company, or should I ask to receive payment as a 1099 contractor
through my company. Separate from this position, I own my own company (S-corp) and will continue to run my company while working on this project over the next year. My goal is to maximize my take home pay and minimize taxes
. Here are the details:
-I own my own company and have hired a manager to continue running day to day operations over the next year while I am doing this project. Manager gets a marginal base pay and then works essentially off of commission so in reality they are making me money while they run things day to day. My business is small (private practice) – it is on track to gross around $350,000 this year, my salary from this will probably be around 59k.
-The Salary I have been offered by staffing company for the other position is $250k ($120 per hour)
-The position includes a health and welfare benefit
of $4.02 per hour (approx. $8000/ year), 10 fed holidays, and 40 hours PTO.
My thoughts are that as a W2 the staffing company will pay their half of the employer tax and will also withhold taxes from my paycheck. This is easier for me BUT I will be taxed on the entire $250,000 salary. However, because I am still running my business, I am thinking I could deduct the expenses associated with this project from my business taxes
to balance things out. I am taking the job to expand my business into the federal
sector so I am planning
on deduct for travel etc. even if I am a W-4 on their side (unless someone says that I can’t for some reason). Also, I plan on putting a portion of the salary into 509 college fund for both my kids, and also was thinking about sheltering some money in a life insurance policy (whole life, small policy, separate from the term policy that would actually cover expenses if I died). This is in addition to 401k etc.
On the other hand, As a 1099 I can deduct everything and decrease my salary from 250k to around 50- 70k, putting the rest into my business. Whatever else I take out can be taken as dividends
through my company at 15%. But, if I do this then I have to pay both Employer and Employee side of the taxes. I think I would retain the health and welfare benefit and the PTO/ holidays even if I was a 1099, but I am not rock solid on that – I don’t see why I would lose those since a 1099 is less expensive for the staffing company but again, I would have to ask to know absolutely for sure.
Question # ***** Per staffing company paperwork: "A nominal portion of the H&W benefit is applied toward mandatory short-term/long-term disability
and life insurance. A portion of the remainder can be applied to health insurance, cashed out or applied to a 401K program."
My question is what is the smartest thing to do with this benefit money? Anyone know what portion goes toward life insurance and what portion is available for investing? Does the employer match a 401k in this situation? I really need advice on the best way to manage this money and maximize its potential.
This is a unique circumstance because a.) I legitamately own my own company and b.) I have been offered this “hybrid” employee/ independent contract position and am not sure how to approach it. It is only one year so I don’t have time to ‘figure it out’…
MY GOAL: to make the SMARTEST most financially savvy choices available to maximize profit, minimize tax spending, maximize money that is matched by employer or sheltered in tax free account, maximize kid and retirement
funds, and basically maneuver things like a millionaire.
I live in VA. My business is located in VA (incorporated in DE). The contract position is located in D.C.
Let me know if more information is needed.
Looking forward to your thoughts.