Wednesday, April 28, 2010

Don't incorporate just because the big boys tell you to.


Hi June -

GREAT info, i could spend hours reading your fantastic advice!

A couple questions please: 1. I just completed a 3 week freelance job - they want me to incorporate to be paid (they have Department of Labor issues) - I think this is crazy and makes little sense, which I told them.

They then asked me to do an EIN with a DBA, I'm slightly more open to that, although I still think it's a lot to ask (and potential cans of worms for me) for just 3 weeks of pay.

They claim they can't do 1099 because of their upcoming audit, can't take chances. Any ideas?

2. Once this job is over, I will file for unemployment (I was laid off prior to this 3 week gig) from a major corporation. Will any of the above scenarios prevent me from collecting? Because I don't want to jeopardize unemployment (I'll need it to fill gaps between freelance assignments) by filing a sole proprietorship EIN, etc - that would be truly unfortunate.

Thanks for your help!
Kelly
PRODUCER, JUST BEGINNING!

BROOKLYN, NY


Wow, Kelly! What an endorsement. Hours reading tax stuff. Thanks.

Many corporations attempted to skirt around the regs dealing with employee versus self-employed so that they could save about 25% to 30% in payroll taxes and employee benefits. They cheated. Some got caught. What often happens is that they devise ways that "look good" but really aren't so good.

By that I mean, the corporation will hire someone who should be classified as an employee but instead hires that person as an indie. The corp then insists that the indie incorporate in order to cover its own rear-end should there be an audit.

Don't incorporate unless the three weeks of income is really, really a lot of money.

An EIN and a DBA is no problem for you. Just a little extra work. Check these posts on EIN-employer identification # and these on DBA - Doing Business As . If your bank won't accept payments to your DBA name then you'll need to open another bank account.

Each state's unemployment regs are different. Check New York's requirements before you take any action. Might want to read these posts first unemployment compensation .

Best,
June

2 comments:

Mike said...

Is it true that a multi-person LLC has the same tax benefits as an S-Corp? Furthermore does a single person LLC looks the same to the IRS as a sole proprietorship especially if you're operating out of a home office?

June Walker said...

Mike, Mike, Mike. I am a failure. I am not being clear enough so I will try again.

An LLC is not a tax entity. It is a legal entity.

If someone tells me he's an LLC there is no way to know whether he's a sole proprietorship, a partnership, or a corporation. And if I don't know that then I don't know how he will be taxed.

On your second question: A single person LLC is a sole-proprietorship. In tax jargon it's called a disregarded entity.

Your homework: Read all these posts -- Business Entity LLC

-- June