Employer converting employees to self-employed and huge tax hit

[soupcxan]

Quote:

Originally Posted by Rustward About two years ago in this thread http://www.early-retirement.org/foru...xes-75914.html You posted this: If these numbers are still close, perhaps you could afford a few hundred dollars to talk with a tax specialist, CPA, or other professional who could tell you all of your options. Yes, boo hoo 4 u. I am crying for you. You have been dealt such a tragic hardship. No human should ever have to endure something as torturous as this. Who can afford to live on so little? And now you might have to pay a little more in taxes? It's just not right!

You're right, I should be thrilled to pay another $15k/year in tax for no reason.

[Senator]

Quote:

Originally Posted by soupcxan You're right, I should be thrilled to pay another $15k/year in tax for no reason.

I just cannot fathom this opportunity resulting in less after tax spending money.

Anyone that makes LESS money being self employed and working for the same company, than being employed as a W2 worker, has a fool for a tax accountant.

[REWahoo]

Quote:

Originally Posted by Senator Anyone that makes LESS money being self employed and working for the same company, than being employed as a W2 worker, has a fool for a tax accountant.

How many W2 workers do you think have a tax accountant?

[ivinsfan]

If you pay 86K in taxes you should have a tax accountant....

[athena53]

Quote:

Originally Posted by Senator Anyone that makes LESS money being self employed and working for the same company, than being employed as a W2 worker, has a fool for a tax accountant.

How about:

1. Salary doesn't change but you now owe the Self-Employed portion of Social Security contributions.
2. Company no longer pays any portion of your health insurance. Yes, the premiums are deductible but that likely will not make up for loss of that subsidy.
3. The OP has said his wife will get a 401(k) match, but typical contract workers don't have that. SEP IRAs have generous maximum contributions but there's no Roth version.

The OP's wife's employer is doing this because it lowers their personnel expenses. One way or another those expenses land on the backs of the "partners".

[HadEnuff]

Quote:

Originally Posted by pjm-7 I worked for a government agency (not federal). An independent contractor is free of control and direction by contract and by fact. Just because the employer makes someone sign a contract that in and of itself does not make the person independent. There must be a "material" fact. Also, the person must hold him or herself out to the public to be independent. Does this independent contractor have their own business cards, website and maintain their own professional licensing? Does the contractor set the rate of pay? There are plenty more tests that need to be met, this is just a summation.

Pretty much what my understanding was. And yet, in dentistry, and it's likely not unique, the trend is towards making what really are employees, ICs. They work in one place, they do not meet any of these tests.

I have yet to hear of any of these arrangements being challenged.

[aaronc879]

Quote:

Originally Posted by soupcxan You don't get a share of the profits unless you put up six-figures of cash to buy in. And that is it's own can of worms. That's why I'm asking...is it even worth working here anymore?

If she is an attorney she can probably find another job paying $200K/yr. In the mean time, $200K is a lot of money even with a little more tax so it's certainly worth staying until she can find a different job that suits her better.

[Big_Hitter]

Quote:

Originally Posted by REWahoo How many W2 workers do you think have a tax accountant?

I do

[Big_Hitter]

Quote:

Originally Posted by Rustward Yes, boo hoo 4 u. I am crying for you. You have been dealt such a tragic hardship. No human should ever have to endure something as torturous as this. Who can afford to live on so little? And now you might have to pay a little more in taxes? It's just not right!

[REWahoo]

Quote:

Originally Posted by Big_Hitter I do

OK, that's one. What percent of the remaining 100+ million have one?

[HadEnuff]

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Originally Posted by REWahoo How many W2 workers do you think have a tax accountant?

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Originally Posted by ivinsfan If you pay 86K in taxes you should have a tax accountant....

Quote:

Originally Posted by Big_Hitter I do

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Originally Posted by REWahoo OK, that's one. What percent of the remaining 100+ million have one?

Well, most of that 100+ million may not benefit from having a tax accountant, but for someone paying 86K, and facing the decisions that OP and his DW are facing, it's a very good suggestion.

[Senator]

Quote:

Originally Posted by athena53 How about: 1. Salary doesn't change but you now owe the Self-Employed portion of Social Security contributions. 2. Company no longer pays any portion of your health insurance. Yes, the premiums are deductible but that likely will not make up for loss of that subsidy. 3. The OP has said his wife will get a 401(k) match, but typical contract workers don't have that. SEP IRAs have generous maximum contributions but there's no Roth version. The OP's wife's employer is doing this because it lowers their personnel expenses. One way or another those expenses land on the backs of the "partners".

How about you take the money in as "Gross Revenue", not salary.
How about you deduct MANY business deductions, BEFORE you pay anyone.
How about you set up a SEP or similar to reduce taxable income.
How about you pay a wage of 60% of what is left, and take the rest as a 40% dividend, without any SE taxes.

You cannot make anyone smart enough to run a business, so it maybe be time to take a different job.

[Big_Hitter]

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Originally Posted by REWahoo OK, that's one. What percent of the remaining 100+ million have one?

my boss uses my accountant too (clifton larsen allen), so that's two

[Senator]

Quote:

Originally Posted by REWahoo OK, that's one. What percent of the remaining 100+ million have one?

No one needs an accountant,. They can read and understand the laws themselves. Of course, it maybe more expensive that way.

There is a huge issue with the tax laws when a common man cannot understand them.

[marko]

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Originally Posted by REWahoo OK, that's one. What percent of the remaining 100+ million have one?

Just about everyone I know has one. So, add another 25 or so to the headcount.

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Originally Posted by Senator No one needs an accountant,. Of course, it maybe more expensive that way.

Yeah, like really, really expensive!!!

[rodi]

Senator - it appears you are assuming the OP's wife will be categorized as "self employed" - where all those nice tax benefits you mention come into play. But it seems she's being categorized as 'non-equity partner'..... NOT self employed. The benefits you talk about (SEP etc) don't apply. She'll still have 401k and not be SEP qualified.

Given the high income of this situation - I think I'd be talking to a tax accountant or tax attorney... or perhaps even an employment attorney. It sounds like OP's wife might be an attorney herself - but probably not specializing in tax or employment.

[HadEnuff]

Quote:

Originally Posted by rodi Senator - it appears you are assuming the OP's wife will be categorized as "self employed" - where all those nice tax benefits you mention come into play. But it seems she's being categorized as 'non-equity partner'..... NOT self employed. The benefits you talk about (SEP etc) don't apply. She'll still have 401k and not be SEP qualified. Given the high income of this situation - I think I'd be talking to a tax accountant or tax attorney... or perhaps even an employment attorney. It sounds like OP's wife might be an attorney herself - but probably not specializing in tax or employment.

agree. If for no other reason than to deeply understand exactly how much this new arrangement is likely to cost the OP's DW, as well as what avenues may exist to mitigate that cost.

[athena53]

Quote:

Originally Posted by Senator How about you take the money in as "Gross Revenue", not salary. How about you deduct MANY business deductions, BEFORE you pay anyone. How about you set up a SEP or similar to reduce taxable income. How about you pay a wage of 60% of what is left, and take the rest as a 40% dividend, without any SE taxes.

Yes, I can see how that would work out to her advantage, but I doubt she'll have much say in how her income is structured for tax purposes. Good question to ask the employer, though.

[Rustward]

Quote:

Originally Posted by soupcxan You're right, I should be thrilled to pay another $15k/year in tax for no reason.

Soup: You don't seem to get it, so I will explain.

YOU AND YOUR SIGNIFICANT OTHER ARE EXTREMELY FORTUNATE TO EARN WHAT YOU EARN.

The fact that you have to pay some taxes should not matter so much.

If your income is what you said it is, 15K is not so much that y'all are getting screwed.

Be thankful for what you have, and quit whining about taxes.

15 years ago our income peeked at 200K on which we paid 47K in federal taxes. I was self employed and paid all the SS and Medicare taxes on top of that, and I did not complain. Actually it was a gift to earn enough to have to pay those taxes.

You need to grow up.

I apologize to the rest of the forum for ranting.

[Big_Hitter]

Quote:

Originally Posted by Rustward Soup: You don't seem to get it, so I will explain. YOU AND YOUR SIGNIFICANT OTHER ARE EXTREMELY FORTUNATE TO EARN WHAT YOU EARN. The fact that you have to pay some taxes should not matter so much. If your income is what you said it is, 15K is not so much that y'all are getting screwed. Be thankful for what you have, and quit whining about taxes. 15 years ago our income peeked at 200K on which we paid 47K in federal taxes. I was self employed and paid all the SS and Medicare taxes on top of that, and I did not complain. Actually it was a gift to earn enough to have to pay those taxes. You need to grow up. I apologize to the rest of the forum for ranting.

the OPs income level has nothing to do with this