contracting

After  the dot com bubble burst, I worked as an independent contractor in software for a few years. This is extremely common in the field. Some companies will hire independents outright, where as many others make you go through contracting firms to mitigate risk. (There was a lawsuit regarding compensation and stock options at Microsoft that caused this, worth googling and reading about). I set up an LLC that I used for a couple of the projects. I want to record a few of the lessons that I learned.

I leanred that when figuring negotiating price, I needed to  remember to factor in Health Insurance, which is much higher for a single payer than for a member of a large organization. I had to pay both sides of payroll tax (roughly 15%) but you then could deduct half of that as a business expense. The math gets a little tricky, but I would say that I was paying about 5% more in taxes than I would have as a salaried employee. There are tax benefits: you can expense much more than you can as a full time employee.  Many of these additional costs to me would have been norne by the comapny that issued me a W2 if I had been a Full Time Employee.

Regardless of the setup between me and the company, I  treated it just like I was  a company, and separated out the money I earned as an LLC from the money I paid to myself as an employee.  Except for the times I had to work through a body shop that issued  a W2, I had to deal with paying  both state and federal taxes. I didn’t pay income tax directly out of your monthly pay, so I held on to the tax money for an average of 1 month an a half longer, which I could invest. There is a final accounting done at the end of the year.  There are books on this. I had a good accountant.

One thing I learned to watch is the length of the contracts. Once a contract ends, if I didn’t have another lined up, I went  without work, but was still paying the mortgage. It was up to me to fill in my own schedule.  I spent a good deal of the time working on my own software, and a lot of time cleaning the apartment.

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