job opportunity - best structure?

[WM]

I've recently connected with someone who's invited me to work with her on a part-time basis. She has her own business, and is looking for someone (me) to loosely partner with her so that she can take on a bit more work and smooth out her income stream. She does evaluation work, and right now can usually only take on one project at a time, sometimes with gaps in between.

This sounds good to me, but the question is how to structure our partnership. She's asked me whether I'd prefer to be paid independently on an hourly or per-task basis, versus becoming an "associate" of her LLC and agreeing on a work/pay split for each contract.

From what I could tell in searching past threads, it sounds like going the "independent" route would give me some advantages as far as being able to set up a solo 401(k) or other retirement plans. But does that require me to set up my own business entity of some kind?

I haven't done contract work before, so I'd really appreciate any thoughts people have about this.

 

[hankster]

I've known too many legal partnerships that ended badly. If it were me, I'd just work as an independent contractor hourly or per task.

 

[Buddha44]

It is not clear what she means by being an "associate" of an LLC. Being a partner in a partnership (or a member of an LLC) is a completely different economic relationship from being an independent contractor, which is likewise different from being an employee. The tax characterizations are likewise significantly different. If you are interested in one-off valuation projects, it would not seem beneficial to be joined in the risks and rewards of all of the projects the LLC is responsible for. Even if the partnership agreement is crafted to pay out only with respect to specific projects, there are numerous tax issues that need to be considered. Presumably you would want to be paid regardless of whether the LLC is profitable, which would make the payments guaranteed payments. You should definitely consult with both an attorney and a tax professional if you are considering being a member in her LLC. Also, note that if she currently owns all of the LLC interests directly, it is a single member LLC (sole proprietorship to her) and disregarded for federal income tax purposes. Your participation or ownership of an LLC interest may constitute the formation of a partnership.

 

[retire@40]

I would opt for a percentage of the total bill. No ownership, no partnership.

 

[WM]

Thanks for the replies. It sounds as though there's no obvious benefit to partnering in a formal way, and being an independent contractor will keep things simpler.

I can do that without being my own LLC or whatever, right? She'll just pay me on a 1099-misc and I pay my own quarterly taxes? I've read the IRS pamphlet on employee vs. contractor, and I don't think I'd qualify as an employee.

I will have to do some more reading on this...

 

[Rambler]

One thing you will need to consider is how much time you work for your friends company and if you will also work for others. I don't remember the rules clearly, but in the past the IRS has disqualified independent contractor relationships and has reclassified them as employee/employer relationships based on the fact that the contractor was working full time at one company. The logic is that if you are truly independent, then you would be making your bread from multiple sources. This can cost a lot in retroactive tax, sometimes for both parties. In your case, the independent contractor choice looks better than the LLC choice, just would suggest you research the rules pretty closely so as not to put yourself in harm's way with that situation.
R

 

[WM]

Hmm, that's a good point, thanks. I don't anticipate that I'll be full-time with her, at least for a while, but I'm not sure that I'll be getting other income, either, so yes, I will have to check into this more carefully.

 

[retiringby50]

I'm thinking anyone can be an employee, but in order to be an independent contractor, you have to "qualify" by meeting a list of requirements. I don't know the other ramifications, but I'm thinking working as an employee would be better for you to get in... and especially get out, if things don't work out.

 

[Kronk]

Here's some info on contractor vs employee: Employee or Independent Contractor, IRS and Tax

One of the items on the list is the one Rambler mentioned. But the whole thing is a gray area, some things make the situation more or less like being an employee. I have coworkers who have been Corp-to-Corp contractors at the same client site through the same consulting firm for over six years with no issues. Of course, you are taking your own risks. I'm taking mine since I recently created an S-Corp and am now being paid as contractor myself. The best part of it for me is being able to contribute $33,500 to my 401k per year.