From: jeffrey@algor2.algorists.com (Jeffrey Kegler)
Subject: Re: firm requests comments
Reply-To: jeffrey@algor2.algorists.com (Jeffrey Kegler)
Organization: Algorists, Inc.
Date: Tue, 28 Jul 92 23:26:53 GMT
Keywords: consulting,1099,401K,referral

In article <2214@tivoli.UUCP> dfavor@logan.tivoli.com (David Favor) writes:
>------- consulting firm requests comments
>
>how important is 1099 income to consultants?

To me, it's totally important.  I've been consulting independently
full-time since 1984 and have never accepted work on any other basis.
To get technical, I own a corporation and am employed by it on a W-2
basis.  I accept work only through the corporation, never as an
individual.  The corporation pays me a salary, on which taxes are paid
and reported in the usual way.

As far as consultants generally, I would say the importance varies
with two factors.  First, the higher the rate the more important tax
considerations are.  My belief is that at $25 to $35 an hour, for some
consultants, the difference may be negligible.  As you go higher, it
becomes more and more important.

The second factor is the degree of reinvestment in his trade the
consultant makes.  A consultant who takes the proceeds and devotes
them 100% to his home mortgage might as well be W-2.  A consultant who
invests heavily in equipment and books (as I do) is paying a 30% or
higher premium if he has to do this out of after-tax income.  So, at
the same income level, income on a non-1099 basis may be a reasonable
proposition or completely unreasonable.

>would it be beneficial to provide consultants with assistance incorporating
>and running the corporation afterwards, to support 1099 relationships?

Yes, it would.  The trouble would be that the agents, to the extent
they have interested themselves in their consultant's corporations,
have attempted in the past to destroy them.  They find their interest
is in dreaming up or looking up laws and regulations and interpreting
them in a way that puts the consultant at a complete disadvantage.  In
the light of history, an offer of "help" would be viewed with
suspicion by a seasoned consultant.  (Why so many agents feel this
need to destroy the very suppliers they require to earn their living
is an interesting question.  It often the case that the agent is more
concerned to ensure the consultant not make money, than to ensure he
makes money himself.)

>would it be of interest to provide some form of tax planning assistance
>geared particularly to corporations (1099) and employees (W2) that work
>in the software consulting field?

See above.  Very helpful in theory, in practice likely to be viewed as
a Trojan horse.  My experience is that any agent inquiring into my tax
affairs is preparing an attempt to destroy my corporation.  I've had
both the IRS and agents I was working through make inquiries about my
corporate taxes, and believe me, the IRS is much more sweet and
reasonable.  Give the choice between an IRS audit, or an request from
an agency I am working through that I explain my tax status in detail,
I would far rather face the former.  That, in the process of making a
tax assessment for which he is not qualified, the agent jeopardizes an
on-going contract we both value, and that if he succeeds in forcing a
disadvantageous tax status on the consultant the agent produces no
advantage to himself never seems to deter him.

>has there ever been a referral compensation program that works? that is, a
>program that benefits consultants, the consulting firm and the consulting
>firm's sales force.

I have avoided referral programs due to my general wariness.  What if
the person you referred starts screwing up?  If you are getting a cut,
you are in a difficult position.  When I do give referrals (which
happens) I do so for free.

>what persisting problems have other consultants experienced over the years?

I think the above was negative enough, so I will compliment the agents
for a change.  I started consulting long enough ago to remember when
there were no agents for consultants.  Then the problem was getting
clients to consider a consultant at all.  Agents legitimized the
business.  Once they became common, I never again had any trouble
selling a potential client on the viability of a consulting
arrangement.  Would we might have lived happily ever after!

I am not fond of marketing, so if I did not expect hostility and
deceit from agents would probably use them 100%.  As it is, 90% of my
income over the last 12 months has been from business I brought in
myself.  Direct clients offer far less hassle than agents usually do,
so it turns out to be easier.  I didn't want to cut out the agents,
and in theory find no reason to do so, but the agents forced me to cut
them out or go out of business.

Jeffrey Kegler, Independent UNIX Consultant, Algorists, Inc.
jeffrey@algor2.ALGORISTS.COM or uunet!algor2!jeffrey
137 E Fremont AVE #122, Sunnyvale CA 94087
"The problem with hi-tech is that the marketers who invented the
term think they know what it means."
-- 

Jeffrey Kegler, Independent UNIX Consultant, Algorists, Inc.
jeffrey@algor2.ALGORISTS.COM or uunet!algor2!jeffrey
137 E Fremont AVE #122, Sunnyvale CA 94087
Newsgroups: misc.jobs.contract