Making the Jump from Employee to Independent Contractor – Now What?
Going from being an employee to becoming an independent court reporter is not as daunting as one might think. With some adjustments and good planning, you will be swiftly on your way to self-employment. Here we have some tips to help you navigate your new status as a small business owner.
Your first priority is to find a good CPA. A good CPA will instruct you on how to set up and manage your enterprise, what taxes you will need to file and when, what business license(s) you may need, and what options you may have for health care and retirement. They will also advise you of what expenses you should track and how, such as transportation expenses, supplies, continuing education…the list goes on.
As far as how you track expenses, there are many options out there. The SAP Concur Expense app tracks your expenses and receipts, and will generate expense reports automatically from this information.. For tracking mileage, a helpful app is MileIQ. It not only tracks your mileage, but also lets you classify your mileage as medical, work, specific depositions, business meetings…the sky’s the limit. It can also provide you weekly, monthly and yearly reports.
The IRS outlines federal taxes and any questions you may have at the IRS website, which has a link to the Self-Employed Individuals Tax Center. You can also get information for your specific state. For instance, Washington State has a website for Small Business Guidance and Oregon State has the website Small Business Advocate. These sites have loads of information and resources, plus they are easy to understand.
The IRS defines an Independent Contractor as a payer that has the right to control or direct only the result of the work, not what will be done and how it will be done, which gives you greater freedom for how you spend your time. You also can work for multiple firms or agencies at the same time, giving you the flexibility to work when, where and for whom you like.
Choose the court reporting firms/agencies/other independent contractors you would like to work with wisely. Be sure to have a full understanding of their billing, collection and payment policies, as well as their expectations from you for covering their work. Some agencies provide software or an app for you to track your jobs, transcripts, billings and payments, making it easy to plan your weekly expenses and income. If an agency does not provide that benefit, be sure to meticulously record your transcripts, billings and payments.
The ICBA, The Independent Contractors Benefits Corporation provides access to a group of discounted benefits, services and supplies, as does NCRA. Be sure to note that what NCRA offers is state-specific.
There are even options to have an Individual 401(k), also known as a Solo 401(k), which only covers business owners and their spouses. Because these plans do not cover non-owners, they are not subject to complex requirements or testing. These plans allow participants to contribute up to $55,000 per year. Both Vanguard and Employee Fiduciary offer Individual or Solo 401(k)s.
Some independent court reporters can feel isolated working from home. This job can be very isolating if you’re single or very busy. Ask if you can spend a day editing transcripts in one of the court reporting firm offices you are working with. Additionally, you can get involved with your state’s court reporters association or, if you work primarily in the legal field, the NALS (National Association of Legal Secretaries), NFPA (National Federation of Paralegal Associations), or your state’s paralegal association to start making friends in the legal community.
Never forget one of the best resources for any new court reporter is your fellow reporters. Our firm regularly hosts get-togethers where all reporters and staff are invited to socialize and do an activity together. These are great opportunities to ask questions and get input into issues you have about maintaining your small business.
I polled a number of court reporters who have been independent contractors for years and they provided some good suggestions on a variety of topics. For paying taxes, one reporter deposits 25% of her paychecks each month into one account and 75% to another. From the 25% account she pays taxes and expenses, and from the 75% account she pays her living expenses. Another reporter stresses the importance of disability insurance, which came in handy when she was in an accident and couldn’t write for a few months. One reporter chose to form an LLC to protect personal assets and provide greater tax flexibility. Choose what works best for you and your family.
Let me know what tips and systems you found helpful. Your input is most valuable.