My largest, most significant client wants me to become an employee, and told me to name my salary. My husband salary and my income put us into a higher tax bracket. Having a company (LLC) offsets our overall tax obligations. Like being able to deduct expenses like my home office, and ability to put more away with an SEP IRA. How much more do I need to earn in salary to compensate for this loss, or am I not evaluating this correctly?
Posted by Icy-Marionberry-8828
7 Comments
Was your company claiming a loss due to business expenses?
Will your new job reimburse those expenses?
What kind of expenses were they?
Will you still have some other self employment clients?
>having my company offsets our tax obligations
How?
>My largest, most significant client wants me to become an employee
In what way are your roles and responsibilities changing?
>How much more do I need to make in salary to make up for this loss?
Impossible to answer. Not sure what expenses you were claiming, not sure what you were earning, not sure how much self employment tax you were paying.
Usually having a company increases your tax obligations. You have to pay your or self employment taxes (social security) at least. Being self employed you’re supposed to charge more than if you were an employee.
Being a W2 employee is often gentler from a tax perspective. They pay half the SS taxes and you get withholdings take out automatically.
If you have been deducting your business expenses against your husband’s salary (which means consistently claiming net losses), you should ask for zero to make up for it, quietly reflect on how lucky you’ve been not to get audited, and hope the statute of limitations passes.
Your employer will now start paying the employer share of social security taxes. You should factor this into your calculations.
Don’t forget to factor in company benefits, 401(k) match, pension, health & disability insurance, as well as company detriments, WFH/RTO, set hours, etc. Giving up what is evidently a successful business would require a generous salary. Maybe full benefits and salary for a 30 hour, flexible schedule would be a good target.
In most cases, people need to be paid MORE to be a contractor than an employee.