How to plan as a 1099 subcontractor (potential conversion to employee)? Need help

How to plan as a 1099 subcontractor (potential conversion to employee)? Need help
0

#1

I was recently fired (don’t know why) and will be starting a new sub contractor job paying 1099 (I am responsible for all expenses). Rate is still being negotiated but lets say I get 1.2K a day. Severance is also being negotiated and let’s say I get about 150K. How should plan for these two scenarios:

  1. The subcontract job lasts for the whole year
    
  2. The subcontract job lasts for several months and then I get converted to full time W-2
    

I will be on cobra at 1K a month and will probably utilize HSA.

My goal is to keep maxing out on retirement for the year (62K for retirement + 6.5K IRA) and hopefully minimize on tax payments (will pre-pay estimated tax with alliant CC). I assume the severance pay can be used to contribute to a solo 401K? Also under 2nd scenario I think I will defer any retirement contribution (solo 401k) so that I can get company matching down the road (can I contribute to solo 401K anyway and then at the end of 2019 decide to withdraw over contribution?).

I have always been a W-2 employee before so I am clueless. Should I do S-Corp or just sole proprietorship? I am in CT (will be commuting to NY for the job) if that matters.

Thank you.


#2

This is an automatically-generated Wiki post for this new topic. Any member can edit this post and use it as a summary of the topic’s highlights.


#3

Is this in NYC? That’ll complicate matters a bit. S corps will be subject to an 8.85% tax, though you can reduce that with payments to s/h for services. Sole proprietorships may be subject to a 4% tax, that may not be able to be reduced with payments for services.

There are other state complications. In addition, just as an fyi, NYS does not automatically recognize the federal S election.


#4

Yes it is NYC.


#5

From what I read if I open S corps I will need to pay additional 6.2% SS tax and pay unemployment insurance and payroll processing fee. What’s the 8.85% (NYS?) and 4% tax (NYC?). Are those employer tax? I understand when I get paid from S corp I have to pay NYS and NYC non resident tax.

Thanks.