We asked the accounting firm of Infeld Barr’s CPA to create a tax return for one of our employees (W-2) and then to create a tax return if this consultant filed as a self employed person (1099).

The consultant had the following:

In addition the self-employed person had an additional $400 in accountant fees.

The worksheet starts with the $127,368 invoiced for both the employee (emp) and he self employed person (sep).

Iamindependent-employee(emp)
The three non-reimbursable expenses are iai fee of $5,095, employer taxes of $6,545 and the entertainment exclusion of $5,224 for a total of $16,863. This leaves $110,505 in the emp’s account. Iai reimbursed the emp for the IRS approved tax-deductible business expenses of $56,699 reducing the amount of dollars available for payroll to $53,806. After a contribution to the emp’s 401 K retirement plan of $2,323 this created a gross taxable income of $51,483. The emp pays federal taxes of $11,845 and received a net after tax paycheck of $39,638. The emp's total after tax retention is $98,660 (retirement plan $2,323, reimbursement expenses of $56,669 and net pay of $39,638)

Self Employed Person (sep)
The self-employed person (sep) invoiced the same amount or $127,368. The payroll tax amounted to $8,813 and the entertainment exclusion is $8,862 (includes Meals & Entertainment) for a total deduction of $17,675. This leaves a balance of $109,693. The sep was reimbursed for the IRS approved business expenses of $36,548 thereby reducing the balance to $73,145. The sep contributed $2,323 to the retirement plan creating a gross taxable wage of $70,822. After deducting federal taxes of $18,356 the sep is left with a balance of $52,466. The net amount retained is $91,337 (reimbursed expenses $36,548 + retirement plan $2,323 + net pay of $52,466)

Conclusion:
The iamindependent employee has retained $98,660 versus the self-employed person of $91,337 or 8% more. The self-employed person is not covered by workman comp insurance, unemployment insurance or disability insurance. In addition, many companies require general liability, errors and omission insurance and proof that all employment taxes have been paid.

1. To see a completed 1040 with all the schedules for a consultant who is
   self employed, click here.
2. To see a completed 1040 with all the schedules for a consultant who works
   for IAI, click here."

Once you review this information, we have no doubt that you will be convinced. Contact us today to start enjoying the financial benefits of our service.