3 ms·

As a devops contractor I earn north of 500gbp/day and I have a 1 year contract. Imagining I take a week or two off this year then that works out to about 200k

As a devops contractor I earn north of 500gbp/day and I have a 1 year contract. Imagining I take a week or two off this year then that works out to about 200k usd How to achieve this? Find a gap in the market, upskill in it, don't be shy about asking for more money than you think the client will offer you (if they're desperate, they will pay)

ashray 13y ago
How does that work out after tax ? I imagine 200k USD would attract a ton of tax. Is there a more tax efficient way to structure it ?
- walshemj 13y ago
  You do it as a company pay your self minimum wage and take the rest as dividends is the basic idea.
  - crucialfelix 13y ago
    really, as dividends ? I need to figure out how to do this. does your (own) company also pay social security ?
    - moopmoop 13y ago
      That's pretty much correct. Dividends are tax free (at least in the UK) and you can structure things so your corporation tax is minimised (maximising various allowances, taking a cut of VAT you charge, buying lots of equipment, etc etc). You just need a decent accountant who understands how to play this game...
      - mgkimsal 13y ago
        It is a game, and you can very likely get flagged. Earning $200k, then paying yourself $15k, and then giving yourself 'dividends' of $150k will very likely trigger an audit. Your 'pay' needs to be considered 'reasonable' for the type of work you do. You might very well do this for a few years, but if you get audited, you'll get fined for this. Make a better estimate - if someone doing similar work in your region might be earning $75k, so pay yourself in that range, then dividend the rest.
        majc2 13y ago
        Possibly in your jurisdiction - which is why you've got to do your homework and get proper professional advice. It's pretty much standard practice in the UK contracting/consulting market; it's been legislated against under something called IR35 - but with a switched on client, you can create a relationship that is genuinely a client/supplier one rather than an employer/employee one.
        mgkimsal 13y ago
        I was speaking from a US perspective, and should have indicated that. "Pay yourself minimum wage, then you can avoid loads of tax!" is a common piece of advice I hear given, and it can be a pretty big red flag to the IRS (got this from my own CPA as well as other CPAs and other financial/tax people over the last ... too many years to count). The issue is not so much whether you're an 'employee' or not, but in the US, 'wages' are subject to FICA tax (~13% IIRC), 'dividends' aren't. Making $150k, but paying FICA tax on only $15k, and treating the other $135k as 'dividends' is not kosher, as you're avoiding FICA tax on $135k (not really 100% true, because there's an upper cap on FICA-taxable income at the moment). It's simply not seen as reasonable for someone who's obviously bringing in $150k to claim they only 'earned' $15k, for example. Furthermore, your future Social Security payments are based in part on how much you've paid in FICA taxes over the years, so someone trying to engage in this will find themselves with reduced SS payments down the road, as well as a probable audit and penalties.
        ashray 13y ago
        Thanks for the detailed responses. The above comments really cleared some stuff up for me. I'd like to add that the US IRS is known to be one of the most (if not THE most) aggressive departments in the world. They have banks around the world bowing to them and it's pretty hard for US citizens to do any of the kind of tax structuring that folks in other countries can. Of course, you are right that this is all still a grey area but I'm sure the laws or precedences are clear in some countries.
      - cjrp 13y ago
        Dividends = capital gains tax.
      - petercooper 13y ago
        Dividends are tax free (at least in the UK) That's only true up to £32,010 and if you're earning £125k or so and extracting most of that through dividends, the majority of your dividend income should be attracting 22.5% and 27.5% tax after discounting, no?

ashray 13y ago

How does that work out after tax ? I imagine 200k USD would attract a ton of tax. Is there a more tax efficient way to structure it ?

walshemj 13y ago
You do it as a company pay your self minimum wage and take the rest as dividends is the basic idea.
- crucialfelix 13y ago
  really, as dividends ? I need to figure out how to do this. does your (own) company also pay social security ?
  - moopmoop 13y ago
    That's pretty much correct. Dividends are tax free (at least in the UK) and you can structure things so your corporation tax is minimised (maximising various allowances, taking a cut of VAT you charge, buying lots of equipment, etc etc). You just need a decent accountant who understands how to play this game...
    - mgkimsal 13y ago
      It is a game, and you can very likely get flagged. Earning $200k, then paying yourself $15k, and then giving yourself 'dividends' of $150k will very likely trigger an audit. Your 'pay' needs to be considered 'reasonable' for the type of work you do. You might very well do this for a few years, but if you get audited, you'll get fined for this. Make a better estimate - if someone doing similar work in your region might be earning $75k, so pay yourself in that range, then dividend the rest.
      - majc2 13y ago
        Possibly in your jurisdiction - which is why you've got to do your homework and get proper professional advice. It's pretty much standard practice in the UK contracting/consulting market; it's been legislated against under something called IR35 - but with a switched on client, you can create a relationship that is genuinely a client/supplier one rather than an employer/employee one.
        mgkimsal 13y ago
        I was speaking from a US perspective, and should have indicated that. "Pay yourself minimum wage, then you can avoid loads of tax!" is a common piece of advice I hear given, and it can be a pretty big red flag to the IRS (got this from my own CPA as well as other CPAs and other financial/tax people over the last ... too many years to count). The issue is not so much whether you're an 'employee' or not, but in the US, 'wages' are subject to FICA tax (~13% IIRC), 'dividends' aren't. Making $150k, but paying FICA tax on only $15k, and treating the other $135k as 'dividends' is not kosher, as you're avoiding FICA tax on $135k (not really 100% true, because there's an upper cap on FICA-taxable income at the moment). It's simply not seen as reasonable for someone who's obviously bringing in $150k to claim they only 'earned' $15k, for example. Furthermore, your future Social Security payments are based in part on how much you've paid in FICA taxes over the years, so someone trying to engage in this will find themselves with reduced SS payments down the road, as well as a probable audit and penalties.
        ashray 13y ago
        Thanks for the detailed responses. The above comments really cleared some stuff up for me. I'd like to add that the US IRS is known to be one of the most (if not THE most) aggressive departments in the world. They have banks around the world bowing to them and it's pretty hard for US citizens to do any of the kind of tax structuring that folks in other countries can. Of course, you are right that this is all still a grey area but I'm sure the laws or precedences are clear in some countries.
    - cjrp 13y ago
      Dividends = capital gains tax.
    - petercooper 13y ago
      Dividends are tax free (at least in the UK) That's only true up to £32,010 and if you're earning £125k or so and extracting most of that through dividends, the majority of your dividend income should be attracting 22.5% and 27.5% tax after discounting, no?