Slashdot Mirror
To Inc. or Not to Inc.?
rikkards asks: "I have
just started as a contractor for a government office and am doing this
through a recruiter. Said recruiter is saying I may want to
incorporate myself. I am wondering if it is really a good thing. I am
not sure whether or not I want to stay as a contractor for the rest of
my career. The money is decent coin (for today but maybe not 2 years
ago). Does anyone have any pros/cons on doing this? If I do it soon
the recruiter will do it for me."
I've been incorporated for 5 years now, so I wanted to give my view of a couple things:
Pros of Incorporation:
Reduced Tax burden through use of write-offs
You can write off many things even if you don't incorporate. I talked with my accountant about this some time back, so I don't remember all the details, but it turned out to be something like 50-60% of what I would have spent I could have been writing off anyway (assuming you itemize). So, talk with your accountant about this before you make a decision (oh, and you need an accountant).
Cons of Incorporation:
Increased time overhead to keep books, separate accounts, licenses etc
This you should definitely do even if you keep a real job. Even if you don't have seperate accounts, you want to keep track of business expenditures in order to itemize those you can and talk to your boss and tell him why he should subsidize your expenses.
"C" Corp taxed twice
This is bit of a red herring. I've always run a C because you have different retirement planning options (i.e. I can put away nearly twice as much under my C corps plan as under others). In return for that, my C corp pays a handsome bonus at the end of every year in order to avoid profits (the profits are what the tax is on).
I agree with the vast majority of what you've said though. It's wise to be careful and make sure you are comparing apples to apples. A $50/hr w-2 position with health insurance and other benefits can be a much better deal than a $60/hr contract position where you must take care of all that yourself.
On the other hand, if you have crummy insurance, a car that you can sell to the company, can save a lot for retirement (e.g. you're still living on $30/hr even though your salary has increased), then $50/hr as a contract may still be worth considering.
Let me retirate one thing. Get an accountant.
I spend about a thousand a year on mine. He does my quarterly reports (which I could easily do myself, but I like having him checking my work more than once a year) and my year end filings. Because of this, he is familar with my company, plans and needs when I call him for advice on specific issues (e.g. leasing v buying vehicles).
Make sure you get an accountant.