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    8 Replies Latest reply on Nov 3, 2011 4:42 PM by Greg Miliates

    Need advice - one person consultant operation

    JorgeL Newbie

      I'm a retired scientist (living in Florida) and have started consulting as a one person operation.  I've some retainer-based and ad hoc clients.   As explained to me, I don't see too much benefit in LLC, incorp etc.  One client asked if they were doing business directy with me or as a company - and asked more questions if the latter. 

      If I'm just me, not an LLC or corp, what is the classificaiton of this business (sorry if this is an ignorant question)?  My banker wants a tax number and business name before I can set up a speicifc checking account.  

        • Re: need advice - one person consultant operation
          WestCoastLife Wayfarer

          Hi Jorge,


          You can be a sole proprietorship if you'd like, and it is easiest if your last name is in your business name; otherwise you need to file a Fictitious Business Name (city offices will help) and say you are Jorge L_____ DBA Science Consulting (or whatever name you choose).  The city business license fees are pretty low and you can use your own social security number as your tax number for tax purposes.  You would just file a 1040 Tax Return and submit a Schedule C (Profit or Loss from Business that describes your expenses vs. income.  Plus you have to complete a self-employment tax form (Schedule SE). If you had a loss, you don't have to pay.  Otherwise, in 2009 for instance, you had to pay 15.3% taxes on 92.35% of your profit.   I was employed in 2010 so I didn't do it that year.


          The drawback with a sole proprietorship is that "you" are your business so if your business gets sued and the plaintiff wins, then they could come after your personal assets.  If chances of that are low, you could start as a sole proprietor; otherwise, you might as well set up an LLC with your state from the get go to protect your personal assets and you can then get a special Federal tax number for that entity that will be in the format: xx-xxxxxxx.  I think with that, you have to be prepared to pay up to at least $850 a year in the minimum yearly taxes you are required to pay (at least it was that much in California).


          Again, figures may change year to year, but I hope this helps a bit.


          Good luck and visit my website sometime!


          Author Janette Noelle Dean

          • Re: need advice - one person consultant operation
            dublincpa Scout

            I am not a lawyer and this is not legal advice, but i would talk to a lawyer.  I have big questions about liability in the field of microbiology.   Some fields like medicine, law and accounting don't offer complete protection through entities, but there is usually still value.  There are also tax benefits and detriments.  So, i would talk to a tax person too, preferably EA or CPA.   

            • Re: need advice - one person consultant operation
              OfficeGoddess Navigator

              I was told by several folks to create an llc for myself, even if I just used my own name for it, to not only protect me from liability but also to add 'legitimacy' as a business.  In Colorado, the llc filing is currently $50 to register and $10 annually.  Because a llc is a pass-through entity, per IRS rules, the income is all considered personal and my Employer Identification Number was requested under my own name.  BUT - the EIN means I'm not giving out my social security number to, in essence, strangers.  I recommend you talk to someone at your Secretary of State's office and your Dept of Revenue office.

                • Re: need advice - one person consultant operation
                  sbnewbie2012 Wayfarer

                  I really like the idea of registering as an LLC.  I think this way for many of the same reasons mentioned above, mainly the protection.  No matter what type of endeavours that you will do, people are going to request information about you, but with the LLC you can give them the business info.  This is a pass-thru entity, but you will need some sort of payroll solutions.  Have you thought about how you will make sure you are paying what you need to pay as you go?  This could lessen the burden at the end of the year. Paycor can offer soltuons to help deal with this.

                    • Re: need advice - one person consultant operation
                      OfficeGoddess Navigator

                      Payroll doesn't have to be complicated. As a virtual bookkeeper, I personally do manual client payroll for up to 5 employees.  After that, it becomes more cost effective to get a payroll solution and, since I primarily use QuickBooks, I recommend the QuickBooks payroll service.  The biggest key is to be sure you know the deadlines, keep your tax tables up-to-date, and make your tax deposits on time.

                  • Re: need advice - one person consultant operation

                    What fine feedback ! I've learned quite a bit from all the replies here.

                    JorgeL? Has the community helped answer your questions?  Let us know!



                    • Re: Need advice - one person consultant operation
                      CorpCons08 Ranger



                      You did receive some great advice here. An LLC can be a single-member managed company and would benefit you from liability personally. I do think that your best bet here though is to speak to a business attorney who specializes in the field you are in. This way, when developing an operating agreement and obtaining any necessary liability insurnace, everything will be mapped out correctly. The worst thing that can happen is if you are not setup correctly, something major happen based off of services provided by you could happen, and you may get sued and lose everything you have worked so hard for.





                      • Re: Need advice - one person consultant operation
                        Greg Miliates Wayfarer

                        Freelancing/consulting is absolutely a business, so treat it that way and act like a business owner--even if that role feels weird at first (you'll get used to it).


                        Set yourself up as an LLC or s-corp, get a federal tax ID number (FEIN), talk to an accountant, and make sure you're all legal. All that might sound overwhelming, but trust me, it's not. Before I started my consulting business, it seemed overwhelming, but as I went through the steps, it was actually really straightforward. Make yourself a checklist of start-up tasks, and work through them--you'll be done it fairly short order.


                        As for the tax issue, I've seen that become a headache for other consultants who didn't plan correctly. After discussing my situation with a CPA, I chose to form an s-corp, and have been very happy with the choice. With my s-corp, I'm the sole employee, and I pay myself a salary (and take distributions as well). As for health and retirement benefits, my s-corp pays 100% of my health insurance premiums (which is essentially like saying that I pay my health insurance with pre-tax dollars), and I have a SEP-IRA which provides equivalent retirement benefits as a 401(k), without the administrative costs and with unlimited investment choices. Paying myself a salary through the s-corp saves on income taxes, since any distributions from the corporation are taxed as regular income, and not subject to social security & FICA taxes.


                        I've seen 2 things sidetrack and/or stymie aspiring freelancers/consultants:  fear and finding clients.  I talk about both those issues on my blog, and recently posted a couple of articles on ways to find clients.


                        If you do something on your business each day, you'll see how your efforts snowball. Not only will you have all your start-up tasks completed--meaning that you're all legit--but you'll notice that you start thinking more like a business owner instead of an employee. You'll see opportunities and prioritize which ones you want to pursue. You'll think of ways to get new clients and expand the work you do with existing clients.


                        Having your own business is hard work, but in my experience, the income and rewards (flexibility, autonomy) are FAR greater than you get as an employee.


                        You can check out an interview I recently did where I talk about how I made the switch from employee to consultant, and where I talk about some of my initial fears and doubts:



                        Greg Miliates