First, if you are salaried, you cannot get your 401(k) plan money out until you retire or quit.
Second, if you are salaried, the IRA discriminates against you.
Third, if you are salaried, it’s hard to ask for more money in a bad economy (like ours).
Fourth, if you are salaried, you future depends on just one income source.
Fifth, if you are salaried, you are taken for granted.
The solution? Independent contractor status. Do the same job you do now, but the money flows to your incorporated business. A layer explains the advantages.
Even though most of government regulation claims to protect employees, it has had the opposite effect. The marketplace changes much faster than government regulation. Government regulation is designed for a business world that existed 50 years ago. There is no way that regulation by a slow moving, democratic government that has to make weekend deals just to keep from being shut down can keep pace with a 21st century information age economy. . . .
There is no doubt that some of these protections benefited employees overall at one time. Some may even be helpful today. But an employee has no choice whether they want to participate in these systems, even if they could get the same benefits elsewhere for less. Employees have no control over their economic life.
Control over your own economic life is valuable, not only in terms of mental health and a feeling of self worth and independence, but also economically. Something as simple as being able to control more of the taxes you pay can have a dramatic impact on your financial well being.
He goes on to say that an independent contractor can cut his taxes significantly.
$150,000 income as a self employed independent contractor.
$7,000 business start up expenses ($10,00 max first year, $5,000 in subsequent years)
$10,000 legitimate business expenses
$9,500 Medicare and Social Security tax (half of $19,000 paid)
$43,100 401k contribution (you deduct both employee and employer portion)
$10,000 IRA contribution ($5,00 for you, $5,000 for a spouse)
$10,000 state and local taxes (estimated)
$10,000 mortgage interest
$10,000 health insurance premiums
$6,150 Health Savings account
$2,500 interest on student loan
$4,000 kid’s college tuition
$1,500 tax credits (buy hybrid vehicle, install solar panels, etc.)
$200 Lifetime Earning Credits (community college class)
= tax liability of $0 on $150,000 income.
This entire strategy is premised on a very important issue. To take advantage of these huge tax benefits you cannot be a regular employee. You can take advantage of every one of these tax benefits as an independent contractor. A regular employee would pay taxes on close to the full amount of that $150,000 of income.
This is the wave of the future.
Businesses can still get the work done that they need to get done without incurring these huge costs by hiring independent contractors instead of employees. Independent contractors are also easier to train, more productive and provide a lot of flexibility in changing economic times.
At some point, it will pay your employer to fire you. It costs too much to keep you on the payroll. Why not get off of the payroll now?
One of the most important things to consider is the amount of control that the firm has over the worker. An independent contractor will have control over their schedule and how they perform the work. The firm will control what they want the outcome or finished product to be. Suggestions are permitted but they must be suggestions. This is becoming much easier with the ability to work remotely over the internet.
Independent Contractor Can Do Work For Others At The Same Time
Another important factor is that the independent contractor is free to do work for others as well. This can be a critical factor that the IRS or Department of Labor look at. It is much better if the independent contractor is doing jobs for other clients, or at least advertising in places like Craigslist for other clients.
There are other advantages. Read the entire article.