Benefits of a 1099 job?

[Rick Lee]

I am wondering how much better or worse a 1099 job is than a W2 one. Is health insurance the main issue or quartely tax payments? Who's done this? And are some employers open to switching sales folks from W2 to 1099 if you ask them? Is it beneficial to them? I'd like to look into this.

[Burnin' oil]

employee vs. independent contractor. 1099 = you pay self employment taxes ($$$), etc.

[widebody911]

BTDT. In hindsight, I wish I'd incorporated. Quarterly taxes aren't that big of a deal, but the extra 7.5% 'self-employment' tax sux. I also wish I'd hired an accountant to do my return.

[stomachmonkey]

1099 has some issues.

Makes you an independent subject to termination at the drop of a hat.

W2 in fire at will states is no better protection but at least you get unemployment protection.

The other problem with 1099 is the gov.

Companies are required to do 1099 audits.

If the co is your only reported income and they employ you beyond a certain length of time then they must either hire you or stop using you. As it was explained to me by HR once, it's to prevent companies from getting around employee protection laws.

By paying you for that long a period of time they have demonstrated that they have a full time need for the position and for you specifically.

If you don't derive 100% of your income from them then the time limit goes away.

If you invoice as an LLC or Inc then it's not an issue.

Least that's what I was told.

[Vipergrün]

As a contractor you can also deduct a LOT of expenses, which *could* outweigh the amount of the self employment tax.

A change from W2 to 1099 may be beneficial to an employer as it can reduce their tax liability (notice the words can and may)

You may be able to participate in your employers group health care plan as a contractor but at a higher premium.

[Rick Lee]

Very cool info. How about forming an LLC through Legalzoom.com and running lots of expenses through it. That has to cut down on taxes, no?

[VaSteve]

Originally Posted by Rick Lee

Very cool info. How about forming an LLC through Legalzoom.com and running lots of expenses through it. That has to cut down on taxes, no?

Rick, talk to Jazz about this. That is how he works. I have considered it. No just yet though.

Talk to a CPA about "running expenses" through. You know I'm a CPA, but I'm not giving advice online. (you don't need a LLC to expense true expenses). BTW, also talk to Gt-3 ryan about how he does it.

[Rick Lee]

Geeze Steve. If you're a CPA and haven't done it yet, there must be some serious drawbacks. How can you write off beer and porn?

[VaSteve]

Originally Posted by Rick Lee

Geeze Steve. If you're a CPA and haven't done it yet, there must be some serious drawbacks. How can you write off beer and porn?

I'm not in public practice (doing taxes and audits and such). I do work for a CPA firm, but we do consulting with the government.

I stay working for the firm because they find the clients and pay me benefits and retirement and stuff. Plus, when we're short on work (which is really rare) I get paid anyhow. I'd be VERY difficult for me to contract with the gov't on my own.

I haven't left yet because I don't feel that I'm at the level of expertise that I could work on my own... I want to gain more expertise before I do that. However, there are far less qualifies 1099 employees out there. Risks are of course that when the work is done, I need to find something else. I'm well connected i probably could do it if I really pushed myself. I'm looking to make a leap right now anyhow. Trying to figure it all out.

[Wickd89]

Originally Posted by widebody911

BTDT. In hindsight, I wish I'd incorporated. Quarterly taxes aren't that big of a deal, but the extra 7.5% 'self-employment' tax sux. I also wish I'd hired an accountant to do my return.

Well I am sure the self employment tax has an impact, but the fact that an independent contractor makes 30-100% more than an employee doing the same job, it is only fair. At least in my industry...

Do you agree that independents make a lot for money than an employee?
This does not include entry level temp work, just stuff like IT, engineering, managmement, etc.....

[RickM]

This is timely as I've been a corporate employee for 27 years.

I was well into six figures and suddenly layed off. I was offered and accepted an excellent opportunity, but as a 1099 consultant.

I spoke to my brother-in-law who is a very experienced CPA here in NJ. He stated that I don't need to incorporate and that it would be more costly to do so. Self employment taxes do suck but, as mentioned, the write- offs I'm entitled to will more than make up for that.

Definitely not as cushy as a corporate exec but I'll likely do much better without a finite annual income.

[Hugh R]

Don't know about your state, but in Cali, I incorporated my business,and it helped to get medical insurance for my family. Here denying an individual insurance is easy, not so with a corporation. Also, as the President, I had the Board give me some perks like a gym membership, company car, cell phone, a few continuing education seminars, and the like. The E&O and professional liability insurance were born by the Corp. When I joined Disney, I closed the corporation because the minimum state income tax here is $800 annually.

[berettafan]

SE tax is why so many people know what an S corp is.

Your deductible expenses are the same regardless of entity choice.

Incorporating in Md. costs about $120 and each year you'll give the gov't $300 to keep your corp. status intact. Save $450 in SE tax and your cost to incorporate just got paid for. For those keeping score that is $3000 in net income.

Income from an LLC which you actively participated in is most likely subject to SE tax as well. This doesn't always happen but that don't necessarily make it right. Guaranteed payments and other strategies MAY be employed but I wouldn't attempt to do it without a competent CPA advising me on it.

Erik

btw, none of you 'too cheap to hire a CPA' bastards is paying me a dime for this little bit of wisdom and you should consult your own CPA as my advice may not apply in your state/situation.

[Don Plumley]

For a single person company (i.e. a 1099 contractor), the benefit of an LLC is the personal liability protection (the benefits of a corporation) but pass-through taxation at the lower personal rate (like a partnership). The downside is a little bit of paperwork, and here in CA, a $800 a year minimum fee. As Erik said, there's no advantage in terms of ability to claim business expenses as a sole proprietor versus an LLC or C-Corp.

As a principal in any organization, you should not have to pay workman's comp - here in CA at least as far as I know.

If you work for a corporation (C Corp, your own or someone else), if you are paid a salary, the corporation has to pay the employer portion of the tax - there is no free lunch. The downside of the corporation is any profits are taxed at the higher corporate rate.

Erik - can you (or another CPA on the board) help explain how forming your own corporation can reduce your individual income tax while maintaining or increasing your net individual income? This isn't clear to me.

Thanks!

[turbo6bar]

Originally Posted by Don Plumley

Erik - can you (or another CPA on the board) help explain how forming your own corporation can reduce your individual income tax while maintaining or increasing your net individual income? This isn't clear to me.

S Corp allows you to take a reasonable salary and the remaining as dividends (which are not subject to SE tax). I am not a CPA.

[berettafan]

what turbo said.

this, however, is a continuing issue w/ IRS. 'Reasonable' gets abused A LOT and IRS has statistics to show it. The # of S corp returns with $100k of net income and NO salary is staggering. Couple this with the fact that uncle sam has been stealing our SSI for years and you have a major issue brewing.

[Rick Lee]

Oh, I wouldn't bother running illegit. expenses through it. But a leased car used mostly for business seems to be defensible. Cell phone bill too. That kind of stuff can take a good chunk out of one's post-tax income, so it would be a decent raise to be able to write it off.

[RickM]

You can also deduct a portion of your home electric, gas, insurance, mortgage(?) bill etc, provided you have a home office. Your accountant can advise on proper percentages.

I'm keeping a diary of my daily activities to be on the safe side.

Anyone know if Quicken accommodates this?

[VaSteve]

Originally Posted by RickM

You can also deduct a portion of your home electric, gas, insurance, mortgage(?) bill etc, provided you have a home office. Your accountant can advise on proper percentages.

I'm keeping a diary of my daily activities to be on the safe side.

Anyone know if Quicken accommodates this?

I would highly recommend that you review your deduction for your home office. This is one of the mostly highly auited items for 1099 employees. They have set it up so that you can't do ANY personal business in your home office. (Never mind the fact you can do pretty much anything at a business office). Also, if you depreciate your home office (a portion of your house) it's going to mess with the basis of your house whn it's time to sell.

Rick Lee, I have to laugh, you're more frequently disssatisfied with your job than I with mine - and more vocal!

[RickM]

Thanks for the info. This will come up when I discuss further with my BIL (CPA).