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1099 or Independent Contractor

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  • 1099 or Independent Contractor

    I have thought about starting up my own company, and honestly the main reason I haven't done it yet is money. One route I have thought about going is simply doing it all by myself as an independent contractor or 1099. Now I already know that I would have to file my own taxes and without the help of an accountant the taxes are a legal nightmare. My question is, does anyone know if I have to register myself as a business (something like a DBA or Sole Prop.) or can I go at it without that? I have already tried looking up the info for my state and can't seem to find anything at the state level other then what they and the IRS define a IC as.

    As a side note with the exception of a few cities/counties in my state you do not need a license for a security company or a security guard/officer. I do not plan to operate in those areas, at least at first anyways.

    I am thinking that if I can go at it as a 1099, it might be lower cost to start up then it would be to start up with a company (i.e. no need for registration fees to the state, county or city). Ideally the 1099 status wouldn't be forever, just untill I get enough business to where I can form an actual company and start expanding. Any help would be appreciated.\

    And yes I do plan on getting liability insurance and such, its just I am thinking if I am a 1 man show I may have less that I have to pay out.
    Be on your guard; stand firm in the faith; be courageous; be strong. - 1 Corinthians 16:13

    The cleanliness of our hearts, The strength of our limbs, and commitment to our promise.

    My military contract is up and over. However, I never needed to affirm that I would defend the constitution, our freedoms, our way of life from enemies both domestic and foreign. Do not think that since I am no longer in the military, I will not pick up a weapon to defend my family, my home or my country. - Me!

  • #2
    I am a little confused as to what, exactly, you are proposing. A 1099 is a form given to independent contractors at the end of the year rather than a W2. When you say that you plan to operate as an independent contractor, are you saying that you plan to hire yourself out to work under other security companies? You can do that as an independent contractor, but unless you have a unique skill set in a small niche, it is unlikely you will find many takers. I used to do that, for example, as a commander for strike security teams. The company would hire people and hire me as an IC to manage them for the duration of the strike. Outside of something like that, however, I think you are going to find IC situations pretty rare.

    If you are talking about going out and finding a client, but working the security yourself as opposed to hiring employees, that is not independent contracting. You are still a security company, albeit a small one.

    I don't know what state you are in, but most do not require any type of business registration if certian requirements are met. For example, you will have to file a DBA if you are using any name other than your own (I.E. John Smith Security). That said, it is best to protect yourself. In most states you can form an LLC for under $200. Trust me, is is more than worth it.

    You also need to check with your local city and county to see if they require any kind of business licenses.

    It may sound imposing, but it is really not difficult or expensive to get started. Insurance for a security company, on the other hand, can be both.

    Good luck,

    David Tombleson
    Executive Security Manager
    Wy'east Tactical, LLC


    • #3
      I've dealt extensively with IC's. An IC is not a business form. It's a term used to describe a business relationship between a "buyer" and a "seller" of services (you). In legal terms, it's exactly the same thing as a sole proprietorship and to be completely legitimate you should take whatever steps are prescribed for establishing a sole proprietorship in your state (e.g., obtaining a business license, filing DBA statement, etc.). Look on the website of the Secretary of State for your state, which is usually the department that handles business registrations. Otherwise, look for a Department of Licensing or something like that.

      I believe you can be an independent contractor if you set up an LLC (limited-liability corporation) as long as you don't elect to be taxed as a corporation, but check with an accountant. Either way, it amounts to practically the same thing as a sole proprietorship.

      You are "selling" your services, and you should present invoices for your hours (and expenses if you're charging for those) to your client (who you would otherwise think of as your employer).

      In addition, you must file and pay your estimated taxes quarterly. The IRS provides special forms for this. If you use a figure of 20% of your invoice amount as your estimate, you'll be about right at the end of the year, or close to it. You are also responsible for ALL of your FICA contribution.

      Furthermore, you want to keep track of all "business-related" expenses for tax purposes, and they add up. These might include pro-rated space in your home for an office, provided it is used primarily for business purposes, vehicle expenses, office equipment, perhaps a pro-rated portion of your phone bill, etc. If you want to do this part right, you won't escape the need for an accountant but they can save you more than they charge.

      Even having done all this, the IRS might still disallow independent contractor status and declare you to be an employee. They don't like IC's, really, because it's a means by which many companies have tried to escape paying FICA, paying overtime, providing benefits for some people, etc. If your "buyer" has substantial control over HOW, WHEN and WHERE you do the work, and especially if you don't advertise your services to the general market for your services and do not work for multiple clients, the chances are your IC status will come under question.

      State law or not, you'll need insurance - general business liability and probably special coverage for a vehicle that you use in the "business" for starters. Don't be surprised if clients present their own insurance requirements as well, covering them. A chat with someone at the Mechanic Group or the Brownyard Group would probably be very helpful in this regard.
      Last edited by SecTrainer; 10-20-2010, 07:18 PM.
      "Every betrayal begins with trust." - Brian Jacques

      "I can't predict the future, but I know that it'll be very weird." - Anonymous

      "There is nothing new under the sun." - Ecclesiastes 1:9

      "History, with all its volumes vast, hath but one page." - Lord Byron


      • #4
        You can be an IC as a "Sole Proprietor." 90% of my vendors are sole props. However, I would look at the LLC route.
        Some Kind of Commando Leader

        "Every time I see another crazy Florida post, I'm glad I don't work there." ~ Minneapolis Security on Florida Security Law


        • #5
          Originally posted by N. A. Corbier View Post
          You can be an IC as a "Sole Proprietor." 90% of my vendors are sole props. However, I would look at the LLC route.
          Yes - most IC's are sole proprietors. I was saying that I believed you could also be an IC (from a tax standpoint) if you're set up as an LLC, as long as you don't elect to be taxed as a corporation. Since that post, I have found not only that you can be an LLC as an independent contractor, but that it's preferable in terms of IRS recognition of your legitimate IC status. While the IRS could still ignore the incorporation in determining whether you're actually an employee, they're less likely to do so.

          "IC" really is just a short way of saying "I'm an individual who is in business for myself and I work for clients under a contract, not for an employer as an employee". It's not a legal or tax category of business organization like sole proprietorship, LLC, partnership, corporation, etc. LLC is an alternative to the sole proprietorship that offers several advantages, not the least of which is in its name - "limited liability" with respect to losing your personal stuff if things go south and you find yourself in court. Some clients might also prefer you to be formally set up as an LLC.
          Last edited by SecTrainer; 10-22-2010, 09:40 AM.
          "Every betrayal begins with trust." - Brian Jacques

          "I can't predict the future, but I know that it'll be very weird." - Anonymous

          "There is nothing new under the sun." - Ecclesiastes 1:9

          "History, with all its volumes vast, hath but one page." - Lord Byron