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Technically Self Employed: Wondering if it's worth it

cyberpunk10

I've been working at the same firm in LA for the past 8 years doing a little bit of everything. I work out of the office but technically I am self employed. I have a B of Arch and have 12 years of experience overall. I pay my own health insurance and get no vacation or sick time off. If I don't work I don't get paid. I am also hourly, so I get no fixed salary or overtime. My hours are pretty flexible. I pay my own taxes including self employment tax.

I earn $35 an hour and have a long commute in horrible LA traffic and because I am self employed pay self employment tax. Today my tax bill after all my deductions came to a whopping $9,500 on income of about $65000. Living in LA with a kid, another kid on the way, a mortgage it feels like I'm living paycheck to paycheck and now i have to pay $9.5k to the government.

With all this being said, I have a growing suspicion that this arrangement is starting to not be worth it. Between the long commute, the lack of prospects of moving up, the self employment tax, expensive health insurance out of my pocket, I need to be earning more in order to feel justified with all the headaches.

Should I be thankful I have a job and suck it up? Should I ask for a raise? Should I move on? I feel like I am at a crossroads and something needs to change.

 
Apr 6, 11 5:14 pm
Rusty!

Nature of your employment sounds illegal as far as your employer is concerned.
Technically, you should not be considered as self-employed.

Also $9.5k on $65k isn't exactly horrible. You should put money away for taxes as you go along.

Start looking for a new job. It's best to do it when you're employed.

Apr 6, 11 5:38 pm  · 
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In my recollection, which could be wrong although it's idiotic for me not to know for sure, the commute costs are deductible as long as you are self-employed. If you're an employee, they're not. Check with your accountant.

But like rusty said:

-8 years
-doing a bit of everything
-in the office
-using firm computers (?)

All those conditions point to one answer: You're an employee, and it's illegal for the firm to treat you as a contract worker.

Apr 6, 11 6:27 pm  · 
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St. George's Fields

It's best to use the $0.51 (2011) mileage deduction so you don't have to deal with that MARCS bullshit.

With an average of 260 working days and a one-way commute of 30 miles, you'd have a deduction $7956.

It'd lower you federal taxes by a $1,000 or so.

Apr 6, 11 6:43 pm  · 
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Rusty!

I'm sure cyberpunk is aware of all applicable deductions.

What I'm not sure is how he's paid hourly AND not eligible for overtime pay. Never heard of that one before.

Rest of the post is a rant about having to pay taxes.

If you were a salaried employee at $65k your total tax burden would be much higher than $9.5k.

Apr 6, 11 7:00 pm  · 
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cyberpunk10

Yeah, it's a weird situation over here with being classified as self employed even though I'm really not.

The rest of post really wasn't a rant. I was just contemplating if my work situation was worth the headache.

Apr 6, 11 7:25 pm  · 
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Rusty!

cyberpunk, it sounds like your employer is taking heavy advantage of you then.

Get out of there before IRS determines you owe then an additional $10K. :)

Apr 6, 11 7:37 pm  · 
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Appleseed

If you're IC'ing and paying taxes after deductions, you're gaming it wrong.

and

The IRS would mos def. classify you as an employee.

Apr 6, 11 7:58 pm  · 
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Appleseed

double post-

You seem like you're getting all of the cons of being 'self-employed' and none of the pros, so I would answer 'no, your situation is not worth the headache'.

Apr 6, 11 8:00 pm  · 
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cyberpunk10

Yeah. That's what I thought.

Apr 6, 11 8:01 pm  · 
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won and done williams

given that you have 12 years of experience and have relative autonomy over the hours you spend at the office, it's my opinion that you could reasonably be classified as an ic (not a lawyer, just my opinion based on the flsa). given that, should you move on? if you are dissatisfied, of course you should be planning your escape, but don't move on till you have your new opportunities squared away.

Apr 6, 11 8:31 pm  · 
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cyberpunk10

Yeah, that is the one thing that is keeping me here is the slowish job market. I've had a fellow IC leave the office last year and he hasn't been able to get an interview lined up. Granted he may be overqualified for the places he is applying to, but it's still daunting to see him without a full time job after months of on and off job searches.

Apr 7, 11 5:09 pm  · 
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Ms Beary

If you are self-employed, then essentially you are running your own business. Would a business charge $35 an hour for professional services of any kind? No. Give yourself a raise and inform your "clients" of your new rate of $40 an hour (should be even more than that, but they are a good client and you respect that relationship.)

Apr 7, 11 5:18 pm  · 
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Bloopox

Unfortunately, commuting costs from home to one's regular place of business aren't deductible by the self-employed.

But, if you travel from more than one work place during the same day, then you can deduct the trip from one to the other - but not the first trip of the day to a workplace, or the last trip of the day from a workplace.

If you run a business-related errand close to home at the beginning or end of the day - for instance if you go to the post office to check the PO box that you use for business mail - then you can count that trip as the first or last of day, instead of the trip to or from your office. For example, if you drive 30 miles home from work, but stop at the post office on the way home, and then drive 2 more miles, you can't deduct the 2 miles last trip of the day, but you can deduct the 30 miles between work and the post office.

Apr 7, 11 5:58 pm  · 
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Appleseed

Must be tough to have the taxman riding shotgun with a tripometer.

Apr 7, 11 7:26 pm  · 
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Thanks Bloopox. I knew it was specialized somehow and couldn't remember - I just let my accountant take care of deciding what's the best way to claim my driving - that's why I pay him!



Apr 7, 11 7:32 pm  · 
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St. George's Fields

*cough cough* If your business is registered to your home address, mileage is covered under intraoffice travel. Just as long as you check into your home office every morning before heading to work at your second office, it's deductible. *cough cough borderline-illegal tax shelter cough*

Apr 7, 11 7:34 pm  · 
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Ms Beary

Except the home office thing is easy for the tax man to get you on too.

Apr 7, 11 7:45 pm  · 
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Bloopox

St. George's: that *might* work - but technically having a business registered with your home address is not enough to qualify you to deduct commuting expenses to other places where you regularly work. You're only eligible to deduct travel costs to your other places of business if your home office was your "principal place of business." According to the IRS this means "used regularly and exclusively" as the location for the majority of your income-earning activities. If you're audited on this you need to show a record (such as a date book with your notes) of where you worked on various days.

Alternatively, your home office can also qualify as your principal place of business if it is "used regularly and exclusively for management and administrative functions" — but only if you didn't make substantial use of any other fixed location for those activities.



Apr 7, 11 7:54 pm  · 
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Bloopox how do you know so much about this - tax school or just a long time in business?

Apr 7, 11 8:08 pm  · 
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Bloopox

Medium amount of time in business, 1 audit, and a friendly accountant.

Apr 7, 11 8:10 pm  · 
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cyberpunk10

Thanks for the sage advice Bloopox. You could almost moonlight as an accountant!

Apr 7, 11 8:15 pm  · 
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Rusty!

Donna, I am surprised you didn't know this. Are you not itemizing your trips from the bedroom to the home office? Stops at the kitchen count too.

But yeah. Small business tax code is kind of fucked (based on experience). You can deduct part of your home. You can deduct most of your vehicle use. Ditto to quasi-business trips. It's an honor system in a way.

If you decide to fudge the numbers, you can benefit greatly. Being brutally honest will hurt you. Your chances of an audit are slim, but if it happens, do take George Costanza's course called "It's not a lie if you believe it".

Apr 7, 11 10:02 pm  · 
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I do claim a small portion of my house and my vehicle, but I can't remember how my accountant claims my vehicle - he told me the pros and cons of mileage vs. direct costs at some point and I glazed over then said "Just whatever you think is best". He's very above board.

Lately I'm very good at making every thread all about me. Sorry, cyberpunk. I do think Ms. Beary's advice is really good: tell your employer you are upping your rate. You have another kid on the way, after all, and with 8 years of experience it seems like they need your institutional memory as well as your skills.

The truly shitty thing about working this long as an IC is you can't get unemployment if they lay you off. But I also think you could report their ass because they haven't been paying social security or unemployment tax on you for eight years which is a huge, enormous savings for them. And illegal.

Apr 7, 11 10:23 pm  · 
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mantaray

Re: the OP - my first thought is exactly what Ms. Beary said (and btw I have been in the same experience before so definitely know my IC stuff.) Given your situation, you could definitely rat these guys out to the IRS, because technically you pass the test to be considered an employee & basically they are cheating the IRS. HOWEVER, being an IC isn't the worst thing in the world - and could be a decent set-up for someone who is aware of all the ins and outs of it - BUT YOU HAVE TO BE PAID APPROPRIATELY FOR IT TO BE WORTH IT!!

$35?!?!?!? You have the invoices for these projects, right? Check what rate they're billing you out at. I guarantee it is at least $100 (not knowing anything about the LA market). Probably comfortably over $100. So why are you working for them for peanuts? The problem here isn't the tax classification - it's that you're getting shit on in terms of hourly rate. Your health costs & tax burden should be FIGURED IN to your hourly rate.

Here's a good way to think of it... if you're not their employee, then they're not paying overhead on you (except for many minimal computer use). Therefore think of your work for them similar to how your work would be for a client. Would you charge a client $35 an hour? No. You would charge a client at least $75 I'm guessing (again, not knowing the LA market / whether you're licensed). So why are you letting this firm charge $100 for you and pocket $65 when you aren't costing them very much overhead? At most they should be marking you up the same way they mark up their engineering consultants - aka, %10 management fee. Therefore out of every $100 billing you could make a decent argument for $90 pay. OK now that's probably an extreme thing for you to ask for at this poing, given that you've already been working for them for peanuts for so long - but my advice is, do a little thinking about your TRUE WORTH, and then go out and market yourself to some other firms as a freelancer at the rate you should be making. In this economy I'm sure you'll find a couple takers, given that no one is able to hire full-time right now (and nobody wants to pay benefits). Once you're working on a few projects at a few different offices for a more comfortable rate, ditch these suckers.

Apr 7, 11 10:40 pm  · 
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mantaray

Sorry, this is a subject that is near and dear to my heart because this kind of outright cheating and screwing is rampant in this industry and it's important to know how to handle it. And we collectively are much too humble about our real worth as professionals with wide-ranging (and yet incredibly detailed and specialized) knowledge, experience, and frankly, brains.

As a side note, I was having a conversation in my current (non-arch) role with another colleague who is hiring a free-lance copy-writer for some written pieces we need done. This person is out of work and offering to write for $100/hour. My colleague is positively pouncing on the offer because he's literally never seen copy writing offered so cheap. Apparently he usually pays about $150/hr for freelance writing.

Could you or I do this? YOU BET.
So why do we peddle our advanced education and years of experience in a very difficult and, I'm sorry, much more mentally-exhausting field than copy-writing, for so drastically much less?!

Apr 7, 11 10:44 pm  · 
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mantaray

ha ha ha my mangled syntax proves that there is indeed a talent to copy-writing, and I don't have it. But still, you can never convince me that it's more work / more education / more skillsets req'd to write copy for short articles than it is to be an architect.

Apr 7, 11 10:45 pm  · 
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Rusty!

manta, awesome post(s)!!

Few random points:

I recently sent in a proposal for $35/h to do arch. specs. It was accepted. Couldn't be happier, even though the going rate is 3x that. Trying to break into a new market. Desperate means/measures, etc... Sometimes you are just... cornered.

Being a copywriter is also not very glamorous. Especially if you're female. I was married to one. As a female, you will be taken advantage of. Actual hours billed have nothing to do with hours worked. Add to that fierce competition and shifty clients. You do it out of love ultimately...

My point is, you never know. Make demands when you have actual leverage. If you lose a negotiation you can easily move on.

Putting your well being on the line without a backup plan is ultimately foolish.

I would recommend to OP to get a job offer elsewhere before making any reimbursement plans.

Apr 7, 11 11:12 pm  · 
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rethinkit

Cyberpunk

I am in the same situation, a 1090. I have 3 years exp. performing production and design with Revit - except I get $20.00.hr in SF. My commute from Daly City to downtown where I work is only $7.00/round trip on Bart. I get to do a lot at the office, performing design, full project BIM modeling and a lot of in house teaching I also work at another small office doing BIM modeling on residential projects to make ends meet.

Apr 8, 11 12:03 am  · 
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So I know the market is really tough right now but there really is something to what manta is saying and it's this: I'm a registered architect with over 20 years experience. The last 6 has been in residential. But I don't know BIM. So rethinkit, you have valuable skills that I totally don't (and frankly it worries me) - ask for more money!

<rant> Just fuck this profession sometimes - how many people are being screwed by being forced to work contract because it saves the boss some money and paperwork?! Ugh I hate our profession so often.</rant>

Apr 8, 11 7:17 am  · 
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strlt_typ

hey cyberpunk, I'm curious, who did your taxes?

Apr 8, 11 9:04 am  · 
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med.

Doesn't sound worth it to me.

If you have 8+ years of experience and are licensed you could probably make a lot more working at some corporate firm with benefits and everything.

Apr 8, 11 9:38 am  · 
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Bloopox

hey, not to hammer on the tax stuff forever, but, as someone who has survived an audit: I just want to remind anyone who is self-employed and/or planning to deduct a home office, mileage, etc. to keep very good records!

Take a picture of your car's odometer on Dec. 31 (or as close to it as you remember), and keep a little notebook in your car where you track all your business-related trips (date, purpose, & mileage).

Keep a date book, or digital equivalent, keeping track of your whereabouts and time spent on which jobs, for each day. Include time spent working at home, and a brief description of what you were doing.

If you're a self-employed consultant for an architecture firm (or more than one firm), you should be invoicing the firms on your letterhead - NOT filling out a firm's time sheets. Being able to produce these invoices is important not just to establish your self-employed status, but also to prove that you're using your home office for the requisite "management and administrative functions."

As for the likelihood of an audit: roughly 1 in 150 returns are audited each year. IF every return had an equal chance of being audited each year, then one's chances of being audited at least once over the course of a 40-year career would be about 1 in 4.
Of course, every return does NOT have an equal chance of being audited. There are some factors that make it less likely - such as having a lower than average income - which might make the average architect less likely to be audited than the general public.
On the other hand, there are factors that make a return more likely to be audited - one of the most common is deducting home office related expenses. Another is being self-employed but having only one client. Another is having clients who are exclusively former employers.

Apr 8, 11 1:45 pm  · 
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cyberpunk10

Just to clarify to everyone, no I am not licensed yet. I know this has an impact on a person's monetary worth, but is it night and day?

I've been reading a bunch of articles on the web about my freelances, being and IC etc. At $35 an hour, yeah, I am underpaid especially after not getting any raise for five years. I found a great article that helps you in determining what is a fair hourly.

http://webdesign.about.com/od/pricing/a/hourly_rate_for.htm

I plugged in my information and I get something closer to the area of $45 to $50. Granted this is based off of salary.com's Architect IV job description even though I'm not licensed.

Edit about my yearly last year. I had a brain cramp. My income was $56k not $65. Taxes are correct though.

strlt_typ I have an accountant that I've used for about eight years now. She's knowledgeable and smart although not the cheapest.

Apr 8, 11 3:46 pm  · 
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beekay31

cyberpunk,

Yes were underpaid. Yes you've spent 8 loyal years at your employer. Ask to meet concerning a cost of living increase. Ask for a raise in proportion to any tasks you gained over those 8 years. Explain the situation with your child. But as for advice to greatly raise your rate, DO NOT price yourself out of the market. Architects don't get to bill what engineers do. That's just reality. There are thousands out there right now who would work for much less than the $35 you are making. Your firm obviously prefers you continue to work for them, but I wouldn't back them into a corner. Nobody's irreplaceable right now.

Apr 9, 11 1:50 am  · 
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