Best Billing Options for a Contract Position?

ffatTony asks: "I've finished college and found a great job, but now I'm surrounded by a number of contracting options without any real explanation of why one is better than the other. I hoped the more experienced among you could provide some insight. The three options presented to me are (1)Corp to Corp (100% payrate), (2)Independent Contractor (86% payrate), and (3) W2 Employee (62% payrate and a moderate weekly expense stipend). I understand that for the first two, I will need to pay self-employment tax. And in the first case I'll need to start a corporation (<$100, I'm assured), get an insurance policy, and workman's compensation. I'd like to hear about your experiences and any hidden fees that may be associated with each option. What do you all suggest? (Yes I'm going to talk with an accountant as well). Also can anyone suggest an online source that explains exactly what is tax deductible."

Comments

IRS [U.S. Centric]

[ehikory]

Publications 15 and 501 are somewhat useful. You can browse all publications at http://www.irs.ustreas.gov/forms_pubs/pubs.html

If you are outside the U.S., try the department of revenue for your home country: most have at least some information online, and are very happy to explain the details (to encourage filing).

your time is the real cost

[terpia]

Having done this (option 1) I can assure you that the greatest hidden fee is the incredible amount of time spent trying to figure out what the hidden fees are and who needs to get paid for what license/program. What a nightmare, for me at least. Who knew that the evil HR department ever *actually* did anything? To save yourself countless hours of frustration, go with option #2. Unless you plan on going this route for at least a few years, avoid all the extra soul sucking paperwork of option 1, it's a negligable amount of extra money and a significant amount of extra work and time. Luckily I have a friend who works for the bbb who gave me all the info I needed and spent almost as much time getting me started as I did. If you go the route of option #1, make sure you've got some competent friends or relatives who know the ins and outs of your state's business laws.

Re:your time is the real cost

[vanguard]

The advice you got from terpia is very wise. Unless, of course, you would like to start your own business. I'm an employee but I work with about 40% contractors.

Something I see a lot is that somebody comes in a does a great job. The company says, "You're awesome. Are there any more like you?"

Guy replies, "Yep, there sure are. They work for $75 per hour just me."

Guy calls friend, "Hey, you're good and I like my job. Want to make $50 per hour working with me? I'll do the paperwork."

This continues until the guy realizes that he can quit his job and manage his new company.

Anyway, it's just a thought. You might be inclined to go this route and I've seen a couple of people succeed going this route.

Best option of all

[Waffle Iron]

You should consider the best option:

(4) Say that you're a management consulting firm (310% payrate)

A few tips...

[gillbates]

1. If you work corp to corp, yes, you do have to start a corporation and pay taxes. Typically, you get bilked, because your corporation must hire you, and pay you a salary. Not only will you have to pay taxes on the income you are paid by your own corporation, but your corporation will have to pay taxes on the money they pay you. Any additional income is subject to taxation as well - and unlike an independent contractor, you cannot just seize any excess cash in the corporation and claim it as your own.
2. If you work as an independent contractor, yes, you will still have to pay taxes, and be responsible for insurance, etc, but you won't get taxed twice. You will still have to pay taxes at the self-employed rate, which can be substantial.
3. As an employee, your employer worries about taxes and insurance, and you have two additional advantages:
   • Employees are usually harder to fire/get rid of when the project ends. If your current employer doesn't like you, they need do little more than a non-renewal of your contract to get rid of you. However, as an employee, most good corporations will have firing procedures which must be used, and in some, it takes six months or more to fire an employee. This means that you will have ample time to search for another job should things go south. As a contractor, your workplace could wait up to the last minute to tell you that they aren't going to renew your contract.
   • Liability: if you accidentally hose the database as a contractor, you can be held (in some cases) criminally liable for the data loss. As an employee, the only thing that they can do is fire you. If you go with the contract option, you will have to get insurance to cover this kind of situation, where as an employee, you won't.

Personally, I'd rather go with the employment option - in the end, you will probably get better compensation without all of the legal hassles of a corporation.

Re:A few tips...

[infinite9]

If you work corp to corp, yes, you do have to start a corporation and pay taxes. Typically, you get bilked, because your corporation must hire you, and pay you a salary. Not only will you have to pay taxes on the income you are paid by your own corporation, but your corporation will have to pay taxes on the money they pay you. Any additional income is subject to taxation as well - and unlike an independent contractor, you cannot just seize any excess cash in the corporation and claim it as your own.

This is just plain wrong. If you have an C corporation, you're taxed personally on the income that your corporation pays you. Any money that your corporation is paid that isn't paid to you is taxed at the corporate rate. It's true that you're taxed, then you're taxed, but the corporate *profit* is taxed at the corporate rate which starts at 15%, and your personal income is taxed as usual, but since your personal income is less than what the corporation made, you're in a lower tax bracket. And in many cases, your corporation may still officially make less profit because of the deductions. Consider this: If you have a car lease payment of, say $500 a month. And you consider (for taxation purposes) that car to be a business car, you can deduct the entire $500 (plus maintenance and repairs) per month. As a person with a $500 payment, you really are paying, oh, $650-$700 a month in pre-tax dollars. But the corporation only paid $500. So where did the rest go? It was taxed at 15% instead of your higher personal income tax rate, it also didn't contribute to an increase in your tax bracket. Because really, you can now afford to pay yourself less income because that lease payment isn't coming from your personal income anymore. The deductions go on and on. There's also nothing that says that you can't work 1099 for your own corporation. Or have more than one corporation in order to limit your exposure to state income taxes and limit liability. So really, there's nothing that says you have to become an actual employee of your corporation. And it's true that you can't just take the money from your corporation, but in most cases, you wont need or want to. And if you do need it, there are ways around it such as your corporation loaning you money.

If you work as an independent contractor, yes, you will still have to pay taxes, and be responsible for insurance, etc, but you won't get taxed twice. You will still have to pay taxes at the self-employed rate, which can be substantial.

You really shouldn't work 1099. Instead, get an S corporation and you'll get all the benefits of 1099, but more tax flexibility. You should always work corp to corp. Make sure the check is made out to your company name and not your personal name. And there's nothing magical or frightening about the self-employment tax. When you're an employee, you pay half of your social security and other things and the company pays half. When you're self employed, you have to pay all of it. That's the self employment tax. You're really not winning or losing. You break even.

As an employee, your employer worries about taxes and insurance, and you have two additional advantages:
Employees are usually harder to fire/get rid of when the project ends. If your current employer doesn't like you, they need do little more than a non-renewal of your contract to get rid of you. However, as an employee, most good corporations will have firing procedures which must be used, and in some, it takes six months or more to fire an employee. This means that you will have ample time to search for another job should things go south. As a contractor, your workplace could wait up to the last minute to tell you that they aren't going to renew your contract.

This is also completely wrong. I've been far more stable as a contractor than an employee. This is because companies hide bad news from employees so that there's isn't an exodus. It's true that companies can end contracts with no notice, but most states are right-to-work states where employers can do that also. Companies may have policies that dictate firing procedures, but when the company is hurting, they can change policies instantly. Usually, you see when contracts are ending and can plan for them. Also, the extra money (assuming you're fiscally responsible) can help when searching for a new contract. This year, I've been out of work for two weeks. I had three days notice from a contract. That was the first time ever I didn't have a new contract the following monday.

Liability: if you accidentally hose the database as a contractor, you can be held (in some cases) criminally liable for the data loss. As an employee, the only thing that they can do is fire you. If you go with the contract option, you will have to get insurance to cover this kind of situation, where as an employee, you won't.

This is partially true. But as a contractor you can get (well, most clients require it) liability insurance. This insurance costs a few hundred dollars a year. Not a bad sum when you consider that you can make double as a contractor. Also, I seriously doubt you would be charged with a criminal offence. IANAL, but they would need to show intent. If it was an accident, they could certainly sue *your corporation* in *civil* court. That's what the insurance is for.

Here's the poop

[WildThing]

From my many years in this business on both sides of the contract, here's the deal.

1. Corporation
   • Be sure you create a 'S' corp better tax advantages - details see tax laws or accountant
   • You have a layer between you and the client in case of lawsuit - However *very* thin
   • You will have to pay corp taxes as well as individual taxes
2. Sole Prop. Business
   • You get all the deductions availible on Schedule 'C' for taxes - VERY beneficial
   • You *should* still get paid at 100%
   • You could get sued directly
3. Employee - W-2
   • Normal taxes etc. - (will be more than Sole Prop.)
   • You may get woker's comp etc.
   • You may get benefits
   • Safer but you make least of all choices

The long and short of it is which makes you more comfortable. I you always perform honorably then you should have no problem with Sole Prop. method and you make the most this way.

The rundown

[The Bungi]

IANAL, etc.

The first option is probably not your best because you'll have to incorporate and this is not easy, although it's not particularly expensive in most cases. You do not have to do worker's comp and so on because you'll be the only employee (unless you're thinking of subcontracting - things get more interesting). You do have to have insurance and whatever your state laws require. The only problem is that many companies require a minimum yearly gross sales figure to consider you a 'company' - check with them first.

The second option is the best if you want to go independent. I used to live in that world. It's pretty stressful, but you do get to control your destiny to a certain extent. OTOH, you get no automatic Social Security, 401(k), medical benefits and so on. You'll have to do those yourself (and your taxes get complicated in a hurry, so look for a good crook^H^H^H^H^Haccountant =)

The third option varies widely among different companies. The 'W2' is the standard tax form you get in the mail every year if you're an employee. You have it easier there, but not all companies offer the same benefits (obviously check around). IOW, this is the "FTE", full-time employment position as I understand it.

Of course, the more difficult it is to pull off the consulting 'mode', the more money you rake in. Comparatively speaking, I was making tons more money when I was an independent consultant. Now I'm also a consultant but also a 'W2'. I'm considered sorta-hourly but I get full benefits, paid vacation and so forth.

I would probably just ask someone from HR in the company you're dealing with and make them explain what the exact differences are.

Welcome...

[homebru]

I hoped the more experienced among you could provide some insight.

Welcome to the game of life. The game-clock is running and we are keeping score. If you don't already know the rules of the game, then you really don't want to try to learn them while the game is in progress.

Seriously, until you have a clue about taxes, insurance, liability, and a zillion other things, start off as an employee. Employees don't get rich, but they (generally) don't get sued when their code isn't what the customer didn't tell you they wanted and employees don't get hounded by the Internal Revenue Service for "forgetting" to pay their taxes.

Once you figure out the rules or get a better personal support team than slashdot, then you can think about the subtleties of a Sub-S Corporation.

There only piece of insight you need is to know that

1099 is the sweetest option

[0WaitState]

First, you can get a great detail of information at http://www.realrates.com . Nolo press http://www.nolo.com also has some good advice (and books) on the subject.

In my experience, 1099 (Independent Contractor) is the best option, and the 14% cut they're taking is reasonable. I've heard as low as 10% for 1099, but 14% is decent.

From first-hand experience (in California), avoid setting up a corporation unless you can realize some ancillary benefits such as purchasing health benefits or equipment with pre-tax dollars. The downside of a corp is that maintaining your corp is a royal PITA--assume you will spend 4-8 hours monthly just making certain you stay compliant with stupid little rules. Or you can pay an accountant/lawyer to do that for you ($200-500/month).

W2 sucks for several reasons: you can't deduct anything from taxes, you're depending on your body shop to collect for you (and you have little legal recourse if they don't), your only retirement savings options are whatever the body shop offers (at best a 401K with crappy mutual funds), and a 38% cut is way too high.

1099 allows a minimum of hassle, decent deductions, and up to $13500/year into a SEP-IRA. If you really want it, you can still purchase liability insurance as a 1099 contractor, though I've often heard of liability insurance (whether for a 1099 or small Corp) as "sue-me bait". Basically, if you don't have over $100,000 in assets or policies, you're not worth sueing.

Hope this helps

#1 all the way (or #4, below)

[apilosov]

Option #1 might be a bit more complicated, but believe me, in the long run, you'll benefit from it. But read to the bottom of this. :)

The main thing is the fact that according to US Tax law, the things you can deduct as "Employee Business Expenses" are very limited. As a corporation, you are able to deduct anything that is "reasonable and necessary" (subject to some exclusions), both of those things are relatively easy to prove.

Example: You go to a hacker conference (at your own expense). You won't be able to deduct these expenses if you are just an employee.

There of course are some downsides: As employee you are covered by labor law, and generally you have a lot more rights (fair termination, timely pay, etc). Corporation doesn't have any more rights than specified in the contract, and you have to collect payments yourself, and sometimes clients are very slow in paying. Generally, the bigger the client is, the slower they pay. Big Wall Street companies sometimes take 90+ days to pay up. On other hand, they won't go bankrupt...At any case, it does good if you specify in contract terms like "2% discount if payment is within 2 weeks", sometimes that gets accounts payable moving quicker.

You will have to buy your own health insurance, and individual health insurance is quite expensive (50% more expensive than group quote at times), so do include that in your total costs for #1.

Some clients insist on liability insurance policies for your company before they can do business with you. These can run from 500 to 1500$/year, depending on what client requires.

Also, yes, its a lot more paperwork, and you MUST have an accountant to do your taxes, payroll, etc. Without it, you are a sitting duck for IRS.

There are alternative solutions, trying to combine best benefits of #1 without all the hassles: There are "fair" consulting companies that take care of all paperwork, your client's credit risk, health insurance, payroll taxes etc, while still allowing you flexibility to buy certain things tax-free and enjoy other benefits of being incorporated.

"Fair" here refers to the fact that such company charges for its services a small percentage (2-10%) of your total income, while in general, consulting companies rip you off (sometimes taking 66% of your client's fee!).

The way it works is this: Assuming you already have a client and an agreed rate, you come to such a company, and after a few sanity checks, you become an employee of this consulting company, and consulting company signs the contract with your client at an agreed rate.

Then, whenever you need to spend money on something is tax-deductible, you pay for it with company's credit card. This money will be deducted directly from your next payroll check "above the line" (i.e. before the taxes are computed).

I do that for bunch of my friends for free, and I'll certainly consider doing it for others (with minimal fee, to cover my costs), so just let me know if someone is interested in this arrangement. Alternatively, search the web, there are a few companies whose business is explicitly what I described.

S Corp 100%

[monkeydo]

Sart your own S corp. I don't know who told you $100, but it depends on your state. In Texas it is about $350. Check on your state website, the Texas Secretary of State has a Word template on the website that you fill out and send in with a check and viola! Unless you are going to do something complicated it is easiest to incorporate in your own state.

To be an S corp you'll need to get an Employer ID Number from the IRS (Fill out a form) then file for S corp status (another form).

Advantages of an S corp:
1. not double taxed, the net income is passed on to the shareholders as ordinary income, the corp pays no income tax, but as an indiviudal you will pay tax on this income (not medicare or SS)
2. No self employment tax you are not self employed, you work for the corporation. You will have to pay yourself a "resonable" salary, and take witholding, but this is the only money you pay SS and medicare, etc. on, not company's profit.
3. you can do stuff like buy computers (any legitamate business expenses) and that reduces the amount of taxes you pay on item 1.

example:

Your company bills you out at $100/hr. Your salary is a reasonable $35/hr. You pay income tax, medicare, ss, etc. and your company pays and extra 7% on these $35/hr. The company makes $60/hr this money can be spent on all of your expenses, and whatever is left at the end of the year you pay regular income tax on only. The company can also set up a SEP or other retirement plan (basically a company funded IRA) which is passed to you as tax free income and is a deduction for the company.

This is what I did this year after I got laid off, of course YMMV. Antohter advantage of soing it this way is you can have multiple clients, etc. and don't have to do any extra paperwork.
You can probably get by without a lawyer, but I would definately talk to a good CPA, they can steer you in the right direction help fill out forms correctly etc.

www.irs.gov has all the forms you'll need and lots of FAQ's. Just remeber that the IRS regs, like any law, are open to a certain amount of interpretation and the answers in some of those FAQs is really just how the IRS interprets the reg. Again check with your CPA.

Independant is the way to go

[Sherman Peabody]

I have been going Corp-to-Corp for a couple of years now. IMHO:

1. Corp-to-Corp:You are your own employee. Your corporation invoices the client and deposits their check in it's own account. It pays more to make up for the Social Security Tax. You then pay yourself every month, as well as all relevant taxes. This all involves lawyers and accountants, but one the benefits is that you can keep a lot of money in the corporate bank account without paying tax on it, given the correct corporate type. This is not a DIY project, get professional advice before trying this.
2. Independent Contractor: Typically, you work for the marketing company and they handle a lot of the paperwork. You make a little smaller rate to make up for the SS tax. But you still make a lot more than an employee. If you're young and don't have insurance, see if you might be able to get it from them. It not, you can get it elsewhere for around $150 a month.
3. Employee. You make a lot less, but supposedly you make up for it in benefits, like vacation, Health Care, and 401k.

Some people think that there's more security in full time, but that's not true anymore. The deal between employer/employee has been completely broken. I have seen a lot of full-time people get laid off - recently, I watched a large company lay off people with more than 20 years experience who were doing significant work merely to get rid of the liability of their pensions. You will not be working there in 10 years, believe me.

Unless you have incorporated recently, you can't go corp-to-corp. Work on learning about what you need to do in your state so yu have that option on your next client.

I would suggest independent contractor. It pays better and you can work on setting up your corporation. Plus, it makes you think of your career for what it really is. You provide a service to an employer in exchange for money. Take the money and take care of yourself, i.e. start a retirement account.

BEWARE!!!

[Compulawyer]

There is a BIG difference between STARTING a corporation and MAINTAINING a corporation.

1. It is cheap and easy to start a corporation - you fill out Articles of Organization and file them at the Secretary of State's Office with the associated filing fee
2. You must then file annual reports, create by-laws, file corporate tax reports, keep separate books, keep separate bank accounts (which are more expensive to maintain that personal bank accounts), pay dividends (or elect not to), hold annual shareholders, officers and directors meetings (yes - you meet with yourself if you are the only shareholder/officer/director, etc.
3. You are subject to double taxation - the corporation pays what it collects as fees, then you have to pay personal income tax on what you take as a salary
4. Depending on state, the corporation has to pay a yearly excise tax for its existence

The main reason people begin corporations is to have a shield against liability. The main reason businesses ask their "contractors" to start them is so they can avoid paying taxes. This in most cases is illegal. The mere fact that they are giving you this option implies to me that they think that you can be deemed an employee and thus subject to tax.

If you do not maintain a corporation properly, its existence can be disregarded (called "piercing" the corporate veil) and YOU can be PERSONALLY liable for any debts of the corporation -- INCLUDING TAXES. Trust me, you do NOT want the IRS and/or your state's tax authorities chasing you for back taxes, interest, and penalties -- all of which can be many times more than the actual tax owed.

IMHLO (L=legal), you should not agree to anything other than being paid as an employee with full withholding without first talking with an attorney who represents YOU -- definitely NOT your prospective employer's attorney (because of a conflict of interest).

Corporate Options

[sparkyz]

Yeah, the first poster is right and so are the people he's talking about. Contact an Accountant for the option that suits you best; but that doesn't render the rest of what you hear irrelevant.

The biggest gotcha in self-employment is the lack of employer paid benefits. Before making any decision to opt out of W2 style employment, shop appropriate health plans for yourself and make sure you set aside, first thing, 6-8 months of self pay health insurance premiums, especially if you've got family that depends on you. Most of the other benefits you can live nicely without; but consider what you really want. Many life insurance companies will, if asked, offer special self-employment premiums on incentive style life policies. This is nice because you can essentially use this technique to combine enforced retirement savings and life insurance security, again, thinking of your immediate family.

Once you've factored in health insurance, look at the cash that's left from each scenario and start doing some math. Figure your first year's expenses as a contractor, an S-Corp and a W2 employee, look at the 2001 tax tables, which have been published on the IRS site in their preliminary form and see what you net from each. If money is your only criteria, that's the shortest path to an answer.

I've been through all of the above scenarios and settled on an S-Corp, a few reasons and caveats to follow:

In three years as an S-Corp, I have never had to pay corporate income tax. The breadth of your possible deductions is much greater. And most everything you would suspect, is in fact allowed. I captalize and then depreciate my equipment then deduct software, education and training, an office phone and fax, cell phone, mileage, travel, sub-contractors and whatever else comes up. Everything else flows directly through to me as personal income on which I pay taxes at the income tax rate. There is nothing forced, unnatural or illegal about it. This is what the S-Corp was designed to do. I was audited in my first and third years and thanks to paying an accountant to do the preparation, the IRS left me alone without any questions, penalties or fines.

Make sure, if you go this route, that you file an S Declaration with the IRS before January 7th of the tax year (i.e. 1/7/2001 for 2001 taxes). The IRS will not let you slide on this, most of your corporate expenses will be disqualified and you'll have to file a schedule C with your personal income tax return. Very intrusive, privacy invading rectal exam of a tax form, not pretty. Do not forget.

As an S-Corp, your liability in business matters is limited to the assets of the corporation which is a big plus if you ever get sued for any kind of breach of contract. If you are a regular 1099 contractor, your personal assets will be fair game for the plaintiff.

Most businesses that will want to contract with you will be more inclined to do so if you are incorporated. This clearly relieves them of the problem of paying unemployment taxes on you, providing benefits, etc. Your contracts will also be much easier to write because you can skip all that crap about "So and so is not entitled to and is not an employee of blah blah blah" It's like a whole page of language. And they don't have to 1099 you at the end of the year, or do any special sort of reporting on you.

On a personal note, being self-employed increases your responibility to the job. You can't hang that hat on anyone else, anymore. You can, however, turn down jobs you aren't interested in, choose your own tools, piss away a couple hours a day on /. and download lots of porn without fear of reprisal. I made the move three years ago and never looked back. It's been great for me. Now is a great time to be a contractor too. IT departments that have laid off all sorts of people are turning to contractors in increasing numbers for the necessary services on which they have come to depend, but that they are no longer equipped to handle internally. Depending on your skill set, you can probably ride this wave for another couple years, maybe more. If you've wanted to try it, you should. Good luck!

Last thing - do do do, get an accountant. It's cheaper than you think and priceless all at the same time.

re: best billing options for contract position

[taso]

The differences between the three, in my opinion are largely determined by the level of responsibility associated with each and your personal goals. Creating a corp or sole proprietorship (Independent Contractor) is something you should do if you intend to run a functional company (having some actual purpose, possibly hiring people, to create a working "machine" that performs a service or sells a product in exchange for money; money that you are personally responsible for tax-wise). To go with a W-2 option is to join an already established "machine" that will deduct money from your base salary on behalf of Uncle Sam. Not a bad option if the salary is good and the machine looks well-oiled to you.

As far as actual costs, I think your estimate on corp-to-corp ($100) is ambitiously low. Expect to invest about 500-600 if you have an accountant or lawyer do all the filings and advise you. (If you want to do ALL of the footwork and paperwork yourself, then it would probably actually cost around 100 bucks.) I personally found it easier to deal with an accountant, because learning about all that filing stuff would make my head explode. The accountant is one of your most valuable resources in a corporation.

When you factor in insurance and everything, figure ~$1000/yr to keep the corp ticking.

The sole proprietorship option is good if you want to get going in a pinch. The thing to remember if you go this route is to SAVE MONEY FOR TAXES!! When you have cold hard untaxed dollars coming in, it's very hard to resist the urge to pimp out. Tax deposits should be made early/made often.

So, I don't think there is Best Choice on an absolute scale. It depends on which option best fits in with your future plans. And I hope some of the ramblings here help put things into perspective.

LLC is best

[Huusker]

The best choice (IMHO) is to form a Limited Liability Company, or LLC. A sole-owner LLC is taxed like a sole-proprietorship, but it is treated legally like a corporation.

Thus you get the benefit of filing Schedule C with all those tasty deductions, and if go bankrupt or get sued you have the LLC to hide behind ('Limited Liability').

Filing an LLC is cheap, typically $100, and most states recognize them.

As the owner of a consulting company...

[Kefaa]

I worked for one of the top three Global IT consulting firms and after 11 years as a consultant went to a smaller company and finally started my own. The numbers you are throwing out are dependent on so many things, and you are new so the pessimist in me say you are probably going to learn an unfortunate lesson.

[Assuming you live in the United States...]

First, incorporating for $100 is not going to happen. While IANAL or accountant, just filing the paperwork in the US costs that much. Then of course, you have corporate taxes and foreign corporation filings in the event you incorporate in a state like Delaware, but chose to work in say Maryland. These folks get paid even if you do not. Yep, zero income still pays the taxman. Most states have a minimum corporate tax.

Talk to an accountant, have them work the numbers for you and help you decide. Also question the need for incorporation. This used to be done by small businesses to protect the owner's assets. In many states, they have fixed that loophole so if you screw up someone's system, incorporation will not protect you, but the fact you have no money may. This is also the reason many companies will not take on small contracting firms. If the people at the firm completely screw up they have no recourse.

As for your offers, first and foremost payrate is an arbitrary word. Billable rate is what you care about. This is the $$$ per hour, job, project, etc. a corporation will pay for you to be there. If you do not know your billable rate, the numbers are absolutely meaningless (and many would argue are meant to be that way). Consider that a company may be billed $100/hour, would you expect to get $86 under option 2? Unless you know they pay $100 for your services, the company could tell you the payrate is $84/hour (payrate being the amount after expenses and profit are taken).

That out of the way, I want to take you through the three you have listed:
1)Corp to Corp (100% payrate) - I do not understand this one. If you get 100% how are the people who placed you getting paid? My guess is payrate and billable rates are in no way related. Remember all expenses are probably yours. That means when a client asks you to fly to California tomorrow, the $2200 ticket may be yours to pay for. Even your own expenses: both sides of social security, Medicare, health insurance, life insurance, etc.
Understand what you are responsible for. Also remember you will need to cover those months you do not have a contract. $50/hour sounds good while you are making it, but it is $10/hour if you only work four-months in five.

(2)Independent Contractor (86% payrate) This is a pretty good rate. Actually it is a nearly unbelievable rate, because the firm needs at least 16% in most states to break even when you consider taxes, etc. Heck they lose 10% on federal taxes alone, plus they need sales reps, office space, and a profit. Here, they are getting 14%, which makes this a little, difficult to believe I would say. However, it is not impossible. If you have a specialized skill they may pay you this rate just to have the skill or they may use your work as a means to put more people at the site. A lost leader is not out of the question. Like option 1, know what you are expected to pay for.

(3) W2 Employee (62% payrate and a moderate weekly expense stipend). Moderate weekly stipend? What does that mean? The IRS sets the per diems by city each year. If you are not getting expenses covered at 100% then expect per diem. If it is less than that (see the IRS website for per Diem amounts, question it. As for being an employee in general, I would think hard about this one. What does being an employee provide you besides a lower income? I wish it was not true, but job security at any place is pretty much a myth. I have seen places lay off employees while keeping consultants and contractors.

As for what is deductible, get a receipt for everything from your computer to gas in your car. Get one of those books from an office supply place and track the mileage and usage daily, same with expenses. Setup a simple spreadsheet and hang onto every receipt for at least three years. If you are going to have a "home office" make it one. That means it cannot double for something else. People will tell you this is a sure sign for the IRS to audit, but if you are using it as a home office, you have no concerns. If it is your bedroom with a computer desk...

As for how to run it as a business, consider the differences between a contractor and a consultant. A consultant adds value. They bring more to the table than is being asked, they lead and are looked up to while offering constructive input. They know when to be quiet and that in the end, they are paid to do a job even if they do not agree with the approach. In the end, you must get the job done. Any of my clients can get in touch with me 24 hours a day, 7 days a week. Do you need to be this way? No, but I just watched employees and every other consultant get dumped from a client where I still sit. Why? I believe it is because I get the job done without complaint or hassle. Day, night or weekend.

When you do leave, either on your own or because you time is up: Smile, and thank them for the wonderful opportunity. No one said this would be a long-term relationship and this helps ensure you can come back at the next opportunity.

Finally, this is a good question in a bad place (and I wish I had a better place to send you). We all have opinions but remember with free advice you get what you pay for and here there is little to prove I am not a 14-year-old who got my computer three weeks ago. If you are going to do this on your own (and I have found it very rewarding), remember the famous words "Here lies a man smart enough to hire people who knew more than he did". There is no substitute for a good accountant and lawyer. However, I will add that big and good are not the same. Do your research there too.