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Tax Advice Requested: 1099 Related

swcrow

Autocross Champion
Not sure who we have onboard as our local tax expert, but though I’d throw this out there.

My wife was just offered and accepted a 1099 position. While having managed 1099 personnel before, I’ve never been one so I’m unsure of what you can/can’t claim if you are one. Now that I’ll have to start looking at paying taxes with her as a 1099, my question is if she can claim her car (payment, gas, mileage) as a deduction if related directly to her job.

Any advice appreciated…even if just links to where I can school myself on it.
 

jimlloyd40

Autocross Champion
Not sure who we have onboard as our local tax expert, but though I’d throw this out there.

My wife was just offered and accepted a 1099 position. While having managed 1099 personnel before, I’ve never been one so I’m unsure of what you can/can’t claim if you are one. Now that I’ll have to start looking at paying taxes with her as a 1099, my question is if she can claim her car (payment, gas, mileage) as a deduction if related directly to her job.

Any advice appreciated…even if just links to where I can school myself on it.
She can claim mileage but not repairs etc. It's one or the other. If she drives a lot of miles I would do that. Last year the government gave somewhere around 55 cents per mile. If she doesn't drive a lot of miles then repairs etc. Especially if she has a new car. The depreciation for the first year is very high and then tapers in subsequent years. She'll just need to figure out which way saves the most.
 

KevinC

Autocross Champion
You can get bad advice about a shift knob here.. not sure I'd be seeking tax advice from the same audience. If I'm in my situation a real CPA is definitely doing my taxes and answering. Good luck.
 

cb1111

Newbie
Yes, you'll need a CPA. While she can write more stuff off, there are also significant additional costs - like unemployment insurance and all of the other employer copays (medicare and whatnot)

Quite frankly, the 1099 IRS rules are a nightmare if you're used to being an employee. From the Quickbooks website:

How to calculate the hourly rate differences between W-2 and 1099 workers​

You may pay contractors a set amount, either hourly or by the project. Many contractors will outline their payment terms and rates in their contracts. 1099 contractors who are paid hourly may ask for a higher hourly rate than you pay your regular employees. 1099 contractors pay their own taxes and supply their own benefits. So they may need to charge more per hour to cover those costs.

Employment taxes (like Social Security taxes and Medicare taxes) amount to 15.3% of a worker’s gross wages. Employers pay half of this (7.65%) and withhold the other half from W-2 employee paychecks. 1099 contractors pay the full 15.3% themselves from the money they earn. They also need to file quarterly estimated tax payments and pay quarterly estimated federal and state taxes. With this in mind, 1099 contractors need to make a minimum of 7.65% more per hour to cover the employer share of Social Security and Medicare taxes.

How to calculate the salaries and benefit rates of W-2 and 1099 workers​

Contractors don’t always get the added benefits of health insurance, paid time off, and other employer-paid benefits that W-2 employees do. 1099 workers have to provide these benefits themselves. As a rule of thumb, benefits are worth about 30% of a worker’s total compensation package, according to the U.S. Bureau of Labor Statistics.

A March 2020 report found that employer costs for employee compensation for civilian workers averaged $37.73 per hour worked. Wages and salaries cost employers $25.91 while benefit costs were $11.82. These benefits include paid leave, health insurance, retirement savings, and other legally required benefits.

Knowing this, a 1099 contractor needs to make a minimum of 30% more than W-2 employees to match employee compensation, including benefits.
 

jimlloyd40

Autocross Champion
Yes, you'll need a CPA. While she can write more stuff off, there are also significant additional costs - like unemployment insurance and all of the other employer copays (medicare and whatnot)

Quite frankly, the 1099 IRS rules are a nightmare if you're used to being an employee. From the Quickbooks website:

How to calculate the hourly rate differences between W-2 and 1099 workers​

You may pay contractors a set amount, either hourly or by the project. Many contractors will outline their payment terms and rates in their contracts. 1099 contractors who are paid hourly may ask for a higher hourly rate than you pay your regular employees. 1099 contractors pay their own taxes and supply their own benefits. So they may need to charge more per hour to cover those costs.

Employment taxes (like Social Security taxes and Medicare taxes) amount to 15.3% of a worker’s gross wages. Employers pay half of this (7.65%) and withhold the other half from W-2 employee paychecks. 1099 contractors pay the full 15.3% themselves from the money they earn. They also need to file quarterly estimated tax payments and pay quarterly estimated federal and state taxes. With this in mind, 1099 contractors need to make a minimum of 7.65% more per hour to cover the employer share of Social Security and Medicare taxes.

How to calculate the salaries and benefit rates of W-2 and 1099 workers​

Contractors don’t always get the added benefits of health insurance, paid time off, and other employer-paid benefits that W-2 employees do. 1099 workers have to provide these benefits themselves. As a rule of thumb, benefits are worth about 30% of a worker’s total compensation package, according to the U.S. Bureau of Labor Statistics.

A March 2020 report found that employer costs for employee compensation for civilian workers averaged $37.73 per hour worked. Wages and salaries cost employers $25.91 while benefit costs were $11.82. These benefits include paid leave, health insurance, retirement savings, and other legally required benefits.

Knowing this, a 1099 contractor needs to make a minimum of 30% more than W-2 employees to match employee compensation, including benefits.
And you can see from your post why companies like Uber try to classify their drivers as independent contractors to avoid those company benefit costs.
 

tigeo

Autocross Champion
Not sure who we have onboard as our local tax expert, but though I’d throw this out there.

My wife was just offered and accepted a 1099 position. While having managed 1099 personnel before, I’ve never been one so I’m unsure of what you can/can’t claim if you are one. Now that I’ll have to start looking at paying taxes with her as a 1099, my question is if she can claim her car (payment, gas, mileage) as a deduction if related directly to her job.

Any advice appreciated…even if just links to where I can school myself on it.
Been a sole LLC/1099 guy for 5 years. You can deduct miles at the going government rate or actual costs but not both for work use of a vehicle. I have a lot of miles from my home office which is my place of business so it always made sense to do the miles. For actuals it will a % based on the split (have to keep track of your mileage) of personal to business use. I spent a ton of time researching and figuring it all out when i got started. Detailed spreadsheet is your friend to keep track of EVERYTHING. I use TurboTax home business (the one for 1099s) and it has worked great for the last 5 years with my system. It's really not as complicated as folks make it out to be.
 
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tigeo

Autocross Champion
Yes, you'll need a CPA. While she can write more stuff off, there are also significant additional costs - like unemployment insurance and all of the other employer copays (medicare and whatnot)

Quite frankly, the 1099 IRS rules are a nightmare if you're used to being an employee. From the Quickbooks website:

How to calculate the hourly rate differences between W-2 and 1099 workers​

You may pay contractors a set amount, either hourly or by the project. Many contractors will outline their payment terms and rates in their contracts. 1099 contractors who are paid hourly may ask for a higher hourly rate than you pay your regular employees. 1099 contractors pay their own taxes and supply their own benefits. So they may need to charge more per hour to cover those costs.

Employment taxes (like Social Security taxes and Medicare taxes) amount to 15.3% of a worker’s gross wages. Employers pay half of this (7.65%) and withhold the other half from W-2 employee paychecks. 1099 contractors pay the full 15.3% themselves from the money they earn. They also need to file quarterly estimated tax payments and pay quarterly estimated federal and state taxes. With this in mind, 1099 contractors need to make a minimum of 7.65% more per hour to cover the employer share of Social Security and Medicare taxes.

How to calculate the salaries and benefit rates of W-2 and 1099 workers​

Contractors don’t always get the added benefits of health insurance, paid time off, and other employer-paid benefits that W-2 employees do. 1099 workers have to provide these benefits themselves. As a rule of thumb, benefits are worth about 30% of a worker’s total compensation package, according to the U.S. Bureau of Labor Statistics.

A March 2020 report found that employer costs for employee compensation for civilian workers averaged $37.73 per hour worked. Wages and salaries cost employers $25.91 while benefit costs were $11.82. These benefits include paid leave, health insurance, retirement savings, and other legally required benefits.

Knowing this, a 1099 contractor needs to make a minimum of 30% more than W-2 employees to match employee compensation, including benefits.
There is no unemployment insurance required (in VA) if you are a sole 1099.
 

swcrow

Autocross Champion
Been a sole LLC/1099 guy for 5 years. You can deduct miles at the going government rate or actual costs but not both for work use of a vehicle. I have a lot of miles from my home office which is my place of business so it always made sense to do the miles. For actuals it will a % based on the split (have to keep track of your mileage) of personal to business use. I spent a ton of time researching and figuring it all out when i got started. Detailed spreadsheet is your friend to keep track of EVERYTHING. I use TurboTax home business (the one for 1099s) and it has worked great for the last 5 years with my system. It's really not as complicated as folks make it out to be.
Eeeeeeexcellent input Adam…. Thanks! I’ll text you with some finer detail questions.
 

jimlloyd40

Autocross Champion
There is no unemployment insurance required (in VA) if you are a sole 1099.
Is there unemployment insurance required anywhere if you're a sole 1099? Otherwise you could just lay yourself off and collect unemployment if business was bad.
 

tigeo

Autocross Champion
Is there unemployment insurance required anywhere if you're a sole 1099? Otherwise you could just lay yourself off and collect unemployment if business was bad.
I don't believe so but to be accurate, I can only speak to VA as that's where my LLC is.
 

cb1111

Newbie
Is there unemployment insurance required anywhere if you're a sole 1099? Otherwise you could just lay yourself off and collect unemployment if business was bad.
Under the CARES Act you can, but you're right, no unemployment taxes for 1099s
 

tigeo

Autocross Champion
Under the CARES Act you can, but you're right, no unemployment taxes for 1099s
Correct - 1099s were elbible for unemployment even though they don't pay the insurance under CARES. There were also PPP and EIDL funds available to soles like me.
 

GIACUser

Master Wallet Mechanic
Not sure who we have onboard as our local tax expert, but though I’d throw this out there.

My wife was just offered and accepted a 1099 position. While having managed 1099 personnel before, I’ve never been one so I’m unsure of what you can/can’t claim if you are one. Now that I’ll have to start looking at paying taxes with her as a 1099, my question is if she can claim her car (payment, gas, mileage) as a deduction if related directly to her job.

Any advice appreciated…even if just links to where I can school myself on it.

Not a tax expert but have been on all sides of 1099 and employees as a worker and an employer.

Just a clarification and I am sure you know this but your wife would not have received a position in a company and be eligible for 1099. 1099 payments are used for independent contractors. In general they are hired to do work described in a contract and not otherwise managed like an employee.

There are plenty of sites on the internet with basic info on all the things you need to know as someone working under contract. I urge you to fully understand the specific contract in terms of what they are asking you to do and all the ways they have to let you go. Then get ready to take on the role of employee and employer if you are getting paid via 1099. It is more work for you and you have to carefully handle you income and set aside your money for taxes. And you have to do a lot of careful/educated record keeping throughout the year to take advantage of the many write-offs available and you are going to need to keep your taxes down.

Because there is no money withheld for taxes etc. it is incumbent upon you to find out and know all of your tax obligations to avoid huge penalties. Of course you need to know all federal and your states tax laws.

Sites like this one can be helpful but never rely on a single source for your info. I never hired a CPA but you can if you want to spend the bucks or you can do some digging and find out all the things he/she will tell you.

Being a contractor (in terms of work) is nice in that you are independent, you just need to deliver the stated expectations of the contract as described and you are good. You can't be managed and told what time to report for work or when you have to work or take breaks etc.
 

swcrow

Autocross Champion
Not a tax expert but have been on all sides of 1099 and employees as a worker and an employer.

Just a clarification and I am sure you know this but your wife would not have received a position in a company and be eligible for 1099. 1099 payments are used for independent contractors. In general they are hired to do work described in a contract and not otherwise managed like an employee.

There are plenty of sites on the internet with basic info on all the things you need to know as someone working under contract. I urge you to fully understand the specific contract in terms of what they are asking you to do and all the ways they have to let you go. Then get ready to take on the role of employee and employer if you are getting paid via 1099. It is more work for you and you have to carefully handle you income and set aside your money for taxes. And you have to do a lot of careful/educated record keeping throughout the year to take advantage of the many write-offs available and you are going to need to keep your taxes down.

Because there is no money withheld for taxes etc. it is incumbent upon you to find out and know all of your tax obligations to avoid huge penalties. Of course you need to know all federal and your states tax laws.

Sites like this one can be helpful but never rely on a single source for your info. I never hired a CPA but you can if you want to spend the bucks or you can do some digging and find out all the things he/she will tell you.

Being a contractor (in terms of work) is nice in that you are independent, you just need to deliver the stated expectations of the contract as described and you are good. You can't be managed and told what time to report for work or when you have to work or take breaks etc.

Yeah so maybe my terminology was wrong....she wasn't offered a "position", but rather hired in a contract that my brain turned into a position...lol. I appreciate the insight...taxes are half my worry; not knowing how much to hold back each paycheck.....guess I'll look for Fed/State percentages and go off that. I'll check that site out as well...thanks!
 

jimlloyd40

Autocross Champion
Yeah so maybe my terminology was wrong....she wasn't offered a "position", but rather hired in a contract that my brain turned into a position...lol. I appreciate the insight...taxes are half my worry; not knowing how much to hold back each paycheck.....guess I'll look for Fed/State percentages and go off that. I'll check that site out as well...thanks!
Based on what her work is she must have an idea of how much she will make in a year. Based on that she will pay estimated taxes quarterly to the government. I know that you know she won't receive a "paycheck" it will be a payment for her services. The terminology is an important distinction between employee and contractor.
 
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