USA New Job As Contractor... should I form an entity?

[pyralis101]

Hi,

I was just hired as a consultant with a company where I will be working from home and paid as a contractor (1099). They have just sent me a W9 to fill out. I will be earning $100k to $150k per year.

My question is, should I form a corporation or LLC to be able to write off more expenses before passing through the net income for my personal tax return?

Here are the scenarios:

Forming a Corporation:
I can write off rent (as the business location), utilities, phone, internet, car, insurance, etc... however the net income will be taxed at the corporate tax rate, and then my wages issues to be will be hit again for personal income tax, so this isn't a good option correct?

Forming a Corp and filing as an S Corp:
While this will provide the benefits above, and allow me to pass through the the net income to myself (avoiding the double taxation) there are rules on S-Corps such as if an owner has 2% or more shares in the corp than certain expenses will not be deductable from the Corp (or is that only for LLC's filing as an S corp)?

Forming an LLC as a single member:
If I do this, the W9 requires me to submit it as an individual, unless I file with the IRS as a partnership (could be an option if I give 1% to someone else if there are benefits), or a C Corp (which would bring double taxation), or an S-Corp (which I believe triggers rules not allowing exemptions for owners over 2% member interest).

Which way is the best way to go to allow me write off my personal expenses under a corp/llc and then pay income taxes on the net proceeds?

Thanks

Michael

 

[The Finance Writer]

The amount of income you anticipate appears sufficient to realize a tax benefit from forming an S corporation. However, you must consider the additional cost for a tax professional because you don't possess sufficient expertise about deductible business expenses (e.g., you cannot write off rent for your home, a personal home phone line, all costs for a personal car, insurance that's not necessary for your work as a contractor, etc.).

 

[AllanMadan]

I suggest forming a LLC. It's simple, avoid double taxation, and provides you with limited liability.

 

[3Dmerchant]

I agree with The Finance Writer. Consult with a professional before choosing. State regulations may also sway your decision one way or the other.

For consulting, creating an LLC and filing form 2553 with the IRS electing to file as an S Corp may be the solution. Yes, this does trigger rules not allowing exemptions for owners over 2% member interest. However, allowable deductions may be taken on the personal tax return instead.