I am now focused on sales and marketing for the company and I am using my own resources (from my business which is an LLC) such as car, gas, computer, printer, software and home office. I am wondering if it would be a benefit to become a 1099 employee versus a W2?
What are the Pros and Cons of 1099?
What are the pros and cons of W2
I'm assuming you're talking about yourself, working for another company? The first thing to consider is that a "1099" is NOT an employee, rather an "independent contractor". The IRS takes it seriously when a company claims 1099 contractors, when in fact, these contractors are treated as employees (the IRS wants payroll tax and will fine companies that miscategorize). To be a 1099 contractor, rather than an employee (W-2), you must have complete control over your schedule - when you work, how much ect. There are other criteria, but this is the main one - you must clearly not be treated the same as an employee. The other thing to consider is that if you are a 1099 contractor, you are responsible for paying and submitting your own income tax and self employment tax to the state and the IRS.
It is more advantageous for a company to pay you as a 1099 contractor as they save paying employer portion of payroll taxes. Also you will not count as an employee for the Affordable Care Act (which impacts companies with over 50 employees).
Hope this helps.
Kathryn
I agree with some of the things Kathryn said about the IRS testing if you are an employee or Independent Contractor according to different tests they do. However when approaching this in a legal way and also in the way of saving the most money on taxes I disagree with a 1099 being more effective.
First off, with a 1099 you pay Income Tax and Self Employment tax but the main thing you have to look at is that your LLC has the right election to avoid self employment taxes. If your LLC is a disregarded or Single member LLC you really need to look at that election one more time to see if it's convenient to change it and save more in taxes.
The second thing is following the law. If you LLC is not a disregarded LLC or taxed as a Single Member LLC it means it is being taxed as a partnership or you have sent the election to be taxed as a C-Corp or S_Corp. This means that the IRS wants to see the members (shareholders to the IRS if different election) who are active in the business being paid a reasonable salary through a w2 not a 1099. Having said that there are different strategies to reduce your payroll taxes, maximize your deductions with legal allowenses and have part of that as tax free money when you own your own LLC.
Give me a call so I can clear your questions about elections and I can give you some strategies you can use to reduce your overall tax liability with your current LLC.
It sounds like you are currently employed with a company, and you are spending your own money to complete tasks as an employee? If you are an employee of a company, your employer will issue you a W-2 which reports your annual wages, federal income taxes withheld, payroll taxes withheld, deductible health insurance premiums, and other employer provided fringe benefits. If an employee spends their own money on business related expenses for which the employer did not reimburse the employee, the individual is generally allowed to claim a miscellaneous itemized deduction for those unreimbursed employee expenses. The expenses are reported on IRS Form 2106 and carried over to Schedule A. However, recent U.S. tax reform has eliminated most of these expenses for employees.
If you want to be able to deduct those expenses, you'll need your employer to switch your status from an employee to an independent contractor. Your independent contractor compensation is reported on Form 1099-MISC, which is ultimately reported on Schedule C of your Form 1040. Those expenses you incurred through the LLC can then be reported on Schedule C and deducted. However, the IRS or state tax authority may challenge your independent contractor status depending upon the facts and circumstances.
Likewise, employers must determine whether to hire full-time workers or individuals who work on a contractual basis for certain roles or even entire departments. You will need to set regular hours and adhere to a schedule you set for yourself, which is no small task. No more losing hours each day because you are stuck in traffic on your daily commute to and from work. These precious hours lost can now be invested in your well-being. This can be greatly beneficial to both your physical and mental health.
To succeed independently, you are going to need clients. Even if you are bringing existing clients with you from a job, you will need to take excellent care of them to keep them. As a W2 employee, your employer pays 7.65% of your Medicare and Social Security taxes and you pay 7.65%. When you are paid by clients and file a form 1099 at tax-time, you’ll be required to pay the employers-share of these taxes, meaning that the full 15.3% comes out of each client payment you receive.
No more employer-sponsored health, dental, life, and disability insurance plans. Gone is the 401 plans with the employer match. This means going out and buying a disability insurance policy, funding a retirement plan, among many other things. As you can see, being a 1099 worker carries with it both advantages and disadvantages. Your age, health, marital status, and other factors may figure into your decision. For employers, deciding whether to hire someone for a position or to use contract labour is based on several factors. Even though supervision is an expense the employer assumes, it is also the significant advantage it has. Employers often find themselves unable to keep the best freelance talent working on their assignments. Freelancers can easily decide to work elsewhere for better compensation to pay for benefits or simply disappear without completing the work for which they were contracted. Having an employee on staff gives the employer the benefit of getting steady work done and fostering better company culture. Though they must offer competitive compensation, employers can count on good employees to be there and consistently churn out high-quality work. “W2” debate, it can be tough for both workers and companies to choose which route to take.
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath
