Published: 09/01/2020

I’m a consultant. Up until recently I was working for MBO partners. They contracted to one of their clients to me, they’re more of a middleman. Basically MBO acts as my employer, paying taxes and providing insurance coverage. Its good and not good at the same time. They provide all the legal coverage I need but take a hefty fee. They’re restructuring the service I’m on and because of that, I’m going to be getting a 1099 from them instead of a W2.

Enter confusion hell

Welcome to confusion hell. I was very confused starting this process. Basically my existing terms were:

  1. I’m technically considered self-employed but am a quasi legal “employee” of MBO
  2. I pay MBO almost 6% of EVERYTHING I make, out of that they allow me to “expense” up to $3000 that gets reimbursed… ok, weird.
  3. I pay the self employment tax on top of this (15.4%; covering both sides of medicare/SS)
  4. MBO does all of the above automatically for me, giving me a check at the end of every two weeks
  5. I get a W2 at the end of the year

My new terms are:

  1. I’m technically considered self-employed; I had to file for an LLC
  2. I pay MBO almost 6% of EVERYTHING I make. My expense account goes away
  3. I pay the self employment tax on top of this (15.4%; covering both sides of medicare/SS)
  4. MBO sends me a check every two weeks containing my invoice to the client less the 6% fee. No taxes taken out (good and bad).
  5. I get a 1099 at the end of the year
  6. I get to file quaterly taxes with the IRS, oh I also need to hire a CPA to help me

What’s so confusing? Well, the fee, almost 6%, for what? Basically nothing? I now have to carry insurance, pay self employement taxes or … or what? I could become an MBO employee and take the 16% fee?

Now this is where it’s confusing, the 16% fee above takes care of the “employer” side of SS and medicare; 7.65%. What about the employee side? I pay the 7.65% ontop of the 16%… Lovely. Expenses? Nope don’t get to file those. Need health insurance? Sure, We’ll take a grand a month…. Retirement? No match but you can contribute. Seems like a great way for them to make even more money…

This left me very confused. They said if I go the employee route, I could earn about what I’m making now. If I go the LLC route, I MAY quailify for the 199A tax deduction.

Enter 199A

This is a magical law. Basically if you make under $400k (according to my new CPA) you can take 20% of your gross earnings, add that to the standard deduction then caclulate your AGI. That means if you gross $100,000 as a developer; you’re married, the standard deduction is $24,000. You add 20% of the $100k, which is $20,000 to the standard and you can deduction $44,000 from your taxes in 2020. Thus lowering your Adjusted Gross Income from $100,000 (as in the case of the other option) to $66,000. Throw in a kid (we have one of those), now my AGI could be $64,000.

What’s great about this is in my example, Married Filing Jointly, you’d go from a tax bracket of 22% ($80-171k) to 12% ($19-80k). 10% TAX SAVINGS. WOZA. That could buy a LOT of jars of baby food…. or ipads. Or both…. (Thats like $10k savings.)


I made the choice, took the chance. I’m now an LLC sole proprietor. Meaning I have to eventually file quaterly taxes (lovely), but I get to do other, more interesting things.

  1. I can be my own legal entity / business. This is great. I can contract and take on 1099 gigs; short term or long term in addition to what I’m currently doing.
  2. I have the systems in place to do any kind of consulting I want to do: I could W2 or 1099 or Corp to Corp; doesn’t matter.
  3. Take on interesting side projects (like from upwork)

Meet my LLC

Meet Stacked Development. It’s my new LLC. The plan is to build a nicer site, but right now its HTML & CSS hosted on Github Pages (like this blog; but I use jekyll here).

Long term, I want to do a few things with this firm: