5 Legal Issues That Consultants Should Know

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5 Legal Issues That Consultants Should Know
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1. Income and self employment taxes

• The distinction between employee and independent
  contractor will affect the way you handle your
  taxes. As an employee, your employer is
  responsible for withholding income taxes from
  your paycheck. In addition, you and your employer
  each contributes half to Social Security
  payments.
• If, however, you are an independent contractor,
  you are responsible for your own taxes because
  the organization that pays you generally will not
  withhold anything.

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2. Sales tax on your fees?

• Check with your state's department of revenue to
  see whether the fees you charge clients are
  subject to tax.
• If they are, and you are not collecting and
  remitting such taxes, you could have a problem.

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3. Intellectual property

• In the course of your consulting work, you may
  create intellectual property for use by your
  clients. Such work might be entitled to copyright
  protection. In this case, be clear with your
  client about such copyright ownership. You do not
  want your work to be considered a "work made for
  hire." The copyright for such a work would reside
  with your client, even though you were the one to
  create the work.
• The client has high hurdles to overcome to claim
  work made for hire status -- but be safe and
  avoid misunderstanding.

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4. Professional liability vs. general liability
insurance

• You should consider at least two types of
  insurance professional liability and general
  liability insurance. While both protect you from
  things you do or fail to do, the specific focus
  of each is different. Professional liability
  insurance protects you from the consequences of
  bad decisions and actions with respect to your
  consulting.
• For example, if your improper systems
  implementation caused the client's business to
  shut down, resulting in loss of revenue, your
  professional liability policy might protect you
  from a client lawsuit.

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5. Business organization option - the corporation

• A corporation offers significantly more legal
  protection. If you are sued over acts of your
  corporation, generally only the assets of that
  corporation can be used in a judgment. Your own
  personal assets, if separate from the
  corporation, usually can't be used.
• However, a corporation requires its own set of
  tax returns and typically requires formal
  meetings and documentation of those meetings.

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