Post-Retirement Consulting Work Question

[Marita40]

Mods, not sure where to put this thread so please move if needed.


Finally anticipating retirement in a few months after a nearly 40 year academic career. I am thinking about doing some consulting work in retirement (I'm an editor/writer), having already had requests from community members and former students now in business. In reality, I might have 0-5 clients a month and would charge on an hourly basis. I'd do it purely for the intellectual challenge and keeping engaged, although the pocket money would be a nice extra. I know zilch about setting such a thing up legally, and I don't even know if it would be worth it yet. Can anyone direct me on how to start investigating this? Thanks!

 

[MBAustin]

I did some consulting after retiring and found it wasn't for me. If you want to be totally legit, set up an LLC (I did it with a local lawyer) and register with your state. Talk with an accountant about implications for taxes which will vary based on the state. You may want to set up a website, business e-mail address, etc.

Enjoy!

 

[target2019]

Mods, not sure where to put this thread so please move if needed.

Finally anticipating retirement in a few months after a nearly 40 year academic career. I am thinking about doing some consulting work in retirement (I'm an editor/writer), having already had requests from community members and former students now in business. In reality, I might have 0-5 clients a month and would charge on an hourly basis. I'd do it purely for the intellectual challenge and keeping engaged, although the pocket money would be a nice extra. I know zilch about setting such a thing up legally, and I don't even know if it would be worth it yet. Can anyone direct me on how to start investigating this? Thanks!

You could either go as sole proprietor or LLC. Plenty has been written about that, so you'll want to research on the internet to get opinions and facts.

The type of consulting work may drive the company structure. How you feel about possible litigation also is something to think about.

You should sign a contract of some kind before beginning work of any kind.

Another alternative is to hire yourself out to a temp agency (body shop) and let them worry about the paperwork, taxes, etc.

I've consulted for many years, sometimes as sole proprietor, sometimes as W2. You'll get a lot of opinions I'm sure. Right now you sound enthused, but trust me the issues of payment, taxes, legal can drive a good person away from consulting.

 

[USGrant1962]

For the amount of work/income that you are implying, a sole proprietorship should be fine. You will need to read your contracts, have an invoice form (available as a template in Word), and keep a spreadsheet of your invoices, payments, and expenses. You may or may not require liability insurance - try Bunker if you need it.

You will need to use Schedule C of 1040 when you do your taxes, but the tax software like HR Block and Turbotax make that pretty painless if you keep a running total of everything in a spreadsheet. If you make more than pocket change you will need to file quarterly estimated taxes.

I consult about 1/3 time in the manner described above.

OH, and make sure your hourly rate is high enough to cover self-employment insurance. You will be shocked at the tax burden on the self-employed. Your rate should be at least 1.5 times your W-2 hourly rate.

Good luck.

 

[RetMD21]

For the amount of work/income that you are implying, a sole proprietorship should be fine. You will need to read your contracts, have an invoice form (available as a template in Word), and keep a spreadsheet of your invoices, payments, and expenses.
Good luck.

Did you get an EIN as a sole proprietor? I am looking at doing a little consulting and couldn't see an advantage of LLC over sole proprietorship for my situation.

 

[pb4uski]

... Finally anticipating retirement in a few months after a nearly 40 year academic career. I am thinking about doing some consulting work in retirement (I'm an editor/writer), having already had requests from community members and former students now in business. In reality, I might have 0-5 clients a month and would charge on an hourly basis. I'd do it purely for the intellectual challenge and keeping engaged, although the pocket money would be a nice extra. I know zilch about setting such a thing up legally, and I don't even know if it would be worth it yet. Can anyone direct me on how to start investigating this? Thanks!

From what you wrote it sounds like this will be small, occasional side jobs... so there isn't much you need to do. Your clients will likely ask you to provide them with a Form W-9 to provide them with your TIN (taxpayer identification number, which in your case would be your social security number). You do the work, bill them for your time and they pay you. If y=they pay you more than $600/year then you'll likely receive a Form 1099-MISC from them with how much they paid you and that same information will be reported to the IRS.

You'll have a Schedule C on your tax return for your editing/writing work and will be able to deduct expenses associated with doing the work... may be time for that new laptop! Your net profit will be taxed as income and will be subject to self-employment tax at 15.3%... so if you want to net $100/hour after self-employment tax then you should charge $118/hour ($100/(1-15.3%)).

 

[donheff]

From what you wrote it sounds like this will be small, occasional side jobs... so there isn't much you need to do. Your clients will likely ask you to provide them with a Form W-9 to provide them with your TIN (taxpayer identification number, which in your case would be your social security number). You do the work, bill them for your time and they pay you. If y=they pay you more than $600/year then you'll likely receive a Form 1099-MISC from them with how much they paid you and that same information will be reported to the IRS.

You'll have a Schedule C on your tax return for your editing/writing work and will be able to deduct expenses associated with doing the work... may be time for that new laptop! Your net profit will be taxed as income and will be subject to self-employment tax at 15.3%... so if you want to net $100/hour after self-employment tax then you should charge $118/hour ($100/(1-15.3%)).

I did a little of this in the year after I retired. I didn't set up any organizations or get insurance. And the engagement letters were written by my clients (they came to me, I hadn't set myself up). I did get a few 1099's. I included the income on my tax return and upped my withholding from my pension enough to cover the self employment tax hit. If I was going to consult on a regular basis I would follow some of the suggestions others have given to put a little bit of structure and protection around the activity.

 

[USGrant1962]

Did you get an EIN as a sole proprietor? I am looking at doing a little consulting and couldn't see an advantage of LLC over sole proprietorship for my situation.

I got an EIN, but only because my solo-401(k) required it. I don't use it for taxes or 1099s.

I've heard that some large companies won't work with Sole Proprietors and require an entity (LLC or corp.), but I work with multi-national corps as an SP. The consensus seems to be that single-member LLCs don't really provide any liability protection, too easy to pierce the veil. Better to make sure your work scope does not attract liability and your consulting is in the form of advice, not direction.

 

[Dd852]

A lot of this is state specific - for example California’s AB5 bill makes it so easy for “gig” workers to be classified as employees that everyone I know of who has any operations in CA insist on the consultant having a corporate structure as part of their AB5 compliance program. Make sure the hassle factor is worth it before you get started! Reading a book by a pond requires no forms, no structures and no irritating contact with people.

 

[davebarnes]

Based upon self-employed work from October 1996 to present.
Sole proprietor.
EIN.
Use real business accounting software. Think Quickbooks and not Quicken.
Pay estimated taxes quarterly. I sent 20% of income to the tax bucket.
Report a profit, even if $1 to avoid the "hobby" trap.
Have a contract.
Have an NDA.
Have multiple customers to avoid the "employee" trap.
Do not take the home office deduction. But, you can deduct computer hardware/software, etc.
Your bill rate should be 2-3X salary rate.

PM me if you want copies of my NDA and contract.

 

[Marita40]

Thanks all. This is super helpful information. Yes, I need to consider whether the hassle of setting this up for myself is worth it. I rather like the idea of hiring myself out for such occasional work to a firm of some type, but that needs further exploration. I'll continue to mull this over...

 

[pb4uski]

For what OP is planning to do I don't think Quickbooks is necessary.... Quicken or GNUCash or any accounting software should be sufficient. My mom has a commercial rental and I just use Quicken for that since I already own it... Quickbooks would be overkill.

 

[davebarnes]

For what OP is planning to do I don't think Quickbooks is necessary.t... Quickbooks would be overkill.

I started with Quicken in 1996.
Three months into 1997, I bought Quickbooks as Quicken was not working for me. Quicken was just too simplistic. No AR for example.

 

[aja8888]

I consulted for the last 25+ years. Early on I formed a Sub S corporation as I had contractors working for my company. Quickbooks was a blessing.

The last few years, I dissolved the corporation and went 1099 contractor and had a DBA handle and business bank account (this is important for recordkeeping). Quickbooks was overkill for the DBA and all that was needed was Quicken for accounting/invoicing and Turbo Tax for the Schedule C reporting at tax time.

Whatever work you take on, make sure you have a written contract with the client. Commercial Liability Insurance may not be needed in your case, but in engineering consulting, which I did, it was necessary as was E & O insurance.

I had a lot of fun being my own boss over 25+ years of consulting.

 

[socca]

Some accountants offer a QuickBooks consulting service, including helping a client get a new business up and running. The client can then handle routine bookkeeping chores themselves. Sometimes special situations pop up that might require the assistance of a pro so that the bookkeeping is done properly, but these situations should be fairly rare for a typical small biz.

I've never used such a QuickBooks consulting service, but I've seen them advertised.

 

[DayDreaming]

...Do not take the home office deduction. But, you can deduct computer hardware/software, etc....

Assuming you meet the requirement of having a room that's 100% dedicated to your business, why not take the deduction?

 

[Dd852]

Assuming you meet the requirement of having a room that's 100% dedicated to your business, why not take the deduction?

It is a common audit flag. If you are willing to go through the hassle of an audit and are confident that one wouldn’t find anything else then fine, but - like everything in life - if the gain isn’t worth the potential pain, let it lie.

 

[pb4uski]

I started with Quicken in 1996.
Three months into 1997, I bought Quickbooks as Quicken was not working for me. Quicken was just too simplistic. No AR for example.

I think she can do it with Quicken or Excel.

....In reality, I might have 0-5 clients a month and would charge on an hourly basis. ...

 

[Rianne]

If you want to be totally legit, set up an LLC (I did it with a local lawyer) and register with your state. Talk with an accountant about implications for taxes which will vary based on the state. You may want to set up a website, business e-mail address, etc.

Enjoy!

Exactly what DH did and he's currently consulting and plans to continue for 2 more years. It's perfect for him. DH has PhD but was in the business world for 30 years. He connects university programs with corporations. He works ~ 20 hours/week (if that) from home. Writes off his office and various home/business expenses. It's really ideal. Income $42K. With all your years as an academic, you can do this.

 

[Teacher Terry]

I have done a little consulting for the past 8 years. I didn’t do anything special besides claiming the income on my taxes. No real chance of being sued. I save my emails for proof until I get paid. My profession is small so if someone didn’t pay word would get out and they wouldn’t be able to get the service they need.

 

[RetMD21]

I got the EIN. It took about 10 minutes.