Comparison of taxes for independent consultant vs sole proprietorship?

Question

OK. I am an independent IT consultant. I'm starting a contract position and will be getting a 1099 form and be responsible for my own taxes (whatever that means, need to find out).
I also recently started a consulting company, currently sole proprietorship, may incorporate by next quarter.

What are the differences in taxes if I have the company on this current contract pay me on a 1099 as an individual contractor, vs having them pay my company.

Would I pay less or more doing one way or the other? Benefits during the year vs year end tax filings? Need CONCISE info and/or sites to decide how I should request payment and handle taxes.

Thanks.

Answer 1

As long as your company is a sole proprietorship and isn't incorporated, taxes are the same as for an independent contractor.

"responsible for your own taxes" means that the employer won't withhold anything. You'll have to file quarterly estimates using form 1040ES, paying in each quarter the estimated taxes due on your profit. That will include both income tax and also self-employment tax, which is for social security and medicare - you'll pay 15.3% - that's what would be both the employee and employer's halves if you were working as an employee. Depending on the state you live in, you will very likely have to file quarterly state estimates also.

Answer 2

There's no tax difference. Either way you're getting paid on a 1099 basis as a contractor. You are responsible for self-employment tax as well as income tax, and you must file quarterly estimates (with estimated payments) or risk penalties.

Look at the IRS site (irs.gov) particularly at instructions for Schedule SE (self employment tax) and Schedule C (profit and loss from business). Those will be the key components whether you receive payment in the business name (sole proprietorship) or your own name.

Answer 3

There is no difference.
but, S-corp might be better for you