What are the risks & rewards of being a self-employed independent contractor / consultant vs. being a permanent employee?

Answer 1

There are many ways to answer this question. Here are the basics:

Pay:

1. Contractor/Consultant pays own self employment taxes (pays employee and employer taxes)
2. Contractor/Consultant may appear you are getting higher paycheck, but you will be required to pay additional taxes (see tax section below)
3. Contractor/Consultant only gets paid for hours worked and no benefits
4. Employee only pays employee taxes
5. If Employee is full time, will likely receive full benefits and vacation / paid time off

Taxes:

1. Contractor/Consultant receives a 1099 and be required to file a Schedule C
2. Contractor/Consultant receives a higher probability of an audit based on filing schedule C
3. For Schedule C, Contractor/Consultant can deduct many expenses (this is a positive)
4. Employee receives W-2 and can file simple tax return, if possible based on other criteria

Flexibility

1. Contractor/Consultant usually has more flexibility to work when he/she chooses (but of course no pay)