The Bottom Line for Consultants

The Bottom Line

iamindependent-employee vs. Self-employed Person

We asked the accounting firm of Infeld Barr CPAs to create a tax return for one of our members, an iamindependent-employee (W-2) and then to create a tax return if this consultant filed as a self employed person (1099).

The consultant had the following:

  • Invoiced the client $202,533.60
  • Per Diem Lodging $15,591.20
  • Mileage auto $4,966.29
  • Medical Insurance $10,275.84
  • Medical reimbursement $1,540.36
  • Per diem-Meals $17,119.74
  • Phone $2,707.80
  • Entertainment $11,066.09
  • Computer $1,544.37
  • Travel $11,072.89
  • Utilities $910.00
  • Professional Fees $4,500.00
  • Internet $717.17
  • Tuition reimbursement $3,100.00
  • Office supplies $2,466.54
  • Parking & tolls $1,746.82
  • Retirement Plan $8,752.89
  • Publications $196.38
  • Local travel $3,736.44
  • Bank charges $504.00
  • Postage $115.97
  • Misc $50.00
  • Job Search $782.88

In addition:

  1. The self-employed person has an additional $1,000.00 in accountant fees and $5,000.00 in various insurances.
  2. The iamindependent-member will incur two additional expenses; the IAI fee of $6,000.00 and the exclusion fee for meals and entertainment of $5,637.00.

While the expenses for the iamindependent-employee (IAI member) are greater, the retained earning of the IAI member is 22% higher.

The worksheet starts with the $202,534.00 invoiced for both the member and the self employed person.

iamindependent-employee (Member)

The non-reimbursable expenses are IAI's fee of $6,000.00, employer taxes of $6,696.00, employee taxes of $6,696.00, income taxes of $15,000.00 and the entertainment exclusion of $5,637.00 for a total of $40,029.00. IAI reimbursed the member for the IRS approved tax-deductible employee’s expenses of $103,464.00. The member’s total after tax retention is $59,041.00 (not including the retirement plan $8,753.00) or 80% ($59,041.00+$103,464.00)/ $202,534.00.

Self-Employed Person

The self-employed person invoiced the same amount of $202,534.00. The non-reimbursable expenses are $10,276.00 for health insurance, self-employed payroll taxes of $14,723.00, income taxes of $19,774.00,  and business expenses of $109,464.00 ($80,334.00 is tax deductible). The net amount retained is $48,297.00 (not including the retirement plan of $8,753.00) or 64% ($80,334.00+$48,297.00)/ $202,534.00.

Conclusion

The iamindependent-employee has retained $59,041.00 versus the self-employed person of $48,297.00 or an increace of 22%. Adding back the reimbursed IRS tax deductible business expenses, the iamindependent-employee has a retention rate of 80% versus 64% for the self-employed person.

  • See a completed 1040 (pdf) with all the schedules for a consultant who is self-employed(1099)
  • See a completed 1040 (pdf) with all the schedules for a consultant who works for IAI(W-2)
  • See a Cash-Flow-Comparison (pdf) for a consultant who works for IAI(W-2) versus a consultant who is self-employed(1099)

Once you review this information, we have no doubt that you will be convinced.

Contact us today to start enjoying the financial benefits of our service.

The Bottom Line for Consultants