Which is better 1099 vs W2? See details...

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

My answer will:
1️⃣ Break down the real-world pros and cons of 1099 vs W-2
2️⃣ Clarify how your LLC setup changes the equation
3️⃣ Highlight what others missed or made confusing

✅ TL;DR (Too Long; Didn’t Read)
If you're using your own LLC, working independently, and covering your own costs — being paid as a 1099 contractor can give you more tax flexibility, deductions, and control.
But it also means:
You pay self-employment tax
You don’t get employee benefits
You need to handle all compliance and bookkeeping yourself

Being a W-2 employee offers stability, payroll tax split with your employer, and access to benefits — but you lose tax deduction flexibility, especially after recent tax law changes.

🧠 Full Breakdown
📄 1. What’s a W-2 Employee?
Pros (W-2):

Employer pays half of payroll taxes
Access to benefits like health insurance, 401(k), etc.
Stable income helps with loan approvals
Covered by workers comp and unemployment insurance

Cons (W-2):
You can’t deduct business expenses easily
Tax law removed most unreimbursed expense deductions
Less control over how and when you work
You can’t legally expense your car, home office, or software

📃 2. What’s a 1099 Independent Contractor?
Pros (1099):
Deduct car, gas, laptop, software, and home office
Freedom over hours, methods, and tools
Often better cash flow with LLC write-offs
If taxed as an S-Corp, you may reduce self-employment taxes

Cons (1099):

Must pay 100% of self-employment tax (15.3%)
No unemployment benefits or paid time off
Handle your own tax filing, accounting, and compliance
No employer-provided benefits unless you set them up yourself

🔄 3. What Changes If You’re Using an LLC?
Since you're operating through an LLC and using your own resources, being paid via 1099 to your LLC gives you:
✅ More flexibility to write off business expenses
✅ Ability to elect S-Corp status to reduce self-employment taxes (with a reasonable salary)
✅ Control over your tax planning and retirement savings

❗ Just make sure the client treats you like a contractor:
You control your hours and tools
You invoice them
You’re not under direct supervision like an employee
Otherwise, it could trigger IRS scrutiny for misclassification.

🔍 What Others Missed
❌ “Financial advisors can help you decide” – most don’t know the tax impact of LLC/S-Corp vs. W-2 unless they’re CPAs, enrolled agents or have an accounting degree with work in this area
❌ “You get taxed either way” – Oversimplified. With 1099 + LLC, you have far more control over how and when you're taxed

✅ One answer correctly flagged self-employment tax, but didn’t explain that S-Corp election can cut it significantly

🧭 Final Word
✅ If you want more control, tax flexibility, and already operate as an LLC — 1099 makes sense
✅ If you value predictability, payroll benefits, and less admin — W-2 may be safer

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