1099 - how does it work?

Yea you're supposed to 'true up' quarterly in most circumstances. The real danger is not budgeting properly - either straight up spending what would have been withheld or not understanding deductible expenses and getting a rude wake-up call at end of year.

Keep in mind assuming you are actually working for a 'real' company, you're going to be given a 1099 earnings summary at EoY and they will report it on the corporate taxes, so it's not like if an audit came up you can just 'fudge numbers' like a tipped waitress or something.

I've been paid via 1099 for a decade now, here's a couple highlights/lowlights of the process

1) You need to pay your income taxes quarterly. If at the end of the year you file your taxes and your quarterly estimate pay-ins are off by more than $1000, you can be fined by the IRS. I honestly don't think they're super strict on that, unless you just flat-out aren't paying quarterly at all or something. I've been off by a couple grand(unexpected end of year bonus) before, and have never been fined.

2) You're basically paying double FICO/social security tax, your half and the employers half. This sucks

3) Do your research on what you can, and can't write off as a business expense. If you are writing off car mileage you have to designate how much of your mileage was personal use and how much was business use, you can't just write off 100% of your yearly mileage if that is also your personal car. You also can't write off any commuter miles, if you have to occasionally commute to an office. You can only write off mileage that is used in the service of customers(going to meet a client, delivering a product, etc) Commuting from home to an office is a no-go.

4) You can only write off your home utilities/mortgage as a percentage of your home office space to the whole home. If you have a 2000sq ft home, and your office is a dedicated 100sq ft bedroom, you can write off 5% of your home mortgage/rent/utilities as a business expense.

5) I highly recommend opening a savings account dedicated specifically to your quarterly and yearly taxes. I get my monthly paycheck and immediately put 28% of it into a savings account. Every 3 months I drain that account and send it to the IRS. That money never sits in my personal accounts any longer than it takes to deposit my check and transfer the money. You don't want that money sitting in your main checking account, someone gets ahold of your debit card, commits a bunch of fraud and the bank now has to investigate for a while before you can get your money back, but in the meantime you need to send several thousand dollars to the IRS. Put that tax money in a very safe place, that doesn't have a debit card tied to it at all.

6) If you are going to write off travel expenses, meal expenses, and anything of that sort, keep receipts and notes for everything.

7) If you are going to have to provide your own health insurance benefits, get some quotes on this ASAP. Most people don't realize how expensive health insurance is. Most people that work for a company don't realize that their employer is probably footing 80%-90% of the cost. They assume their $100 a month that comes out of their paycheck is like half. Usually not even close. Just as an example, health insurance for myself and my wife (both in our mid 30s) is about $550 per month, and that's for a middle of the road plan with a pretty high deductible, not anywhere near the best option available(top-tier plans were upwards of $1000 a month for us both)

I do my Taxes just fine with taxslayer/turbotax. I usually have to pony up for the deluxe version but they work great.

You don't have to pay quarterly, you just add a certain percentage to your taxes if you don't for the fine.

Also figure that you will pay an extra 7.5% or whatever it is for self employment tax in addition to what you would as a W2 employee because you are paying the 7.5% (approx) for the employer half for social security.

I've been 1099 for almost the last 25 years. I always had my CPA do it not only because I am self employed but I had other forms of income on the 1099 like mineral leases, timber sales and the associated cost with that plus the cost of the business I owned etc...

She makes out the quarterly deals each year when I have my taxes down and then I just send in and put the amount.

The penalty isn't that much, but it can add up. A few years I paid my taxes all at once because I might make 80% of a years salary in one check on a project.

Double the info about checking on insurance. Not only will it be more expensive then you thought because a group is cheaper even if you paid 100% of it, but it's hard to get at times being self employed if you want decent insurance.

43 and single, when I left my last company the COBRA cost was $2900/month and they had been paying all but $50/month or something similar. I believe COBRA is around 105% of what the company was paying give or take.

The company I am with now charges employees $35/week and the actual cost to the company is $585/month.

Yeah, my wife and I on her former employers health plan was roughly $16,000 per year, our COBRA amount was going to be about $1400 per month. Was an amazing plan with great dental and vision coverage. When she was between jobs and we had to go through healthcare.gov, that individual plan for $550 a month had zero dental and vision, it was just medical, and high-deductible at that. Health insurance costs are crazy in the US.

Kais_sl said:

I've been offered a position as a 1099 but i've only ever worked as a W-2 before. I'm confused as to how to go about filing the taxes (4x a year?) and what i need to look out for versus the essentially no-brainer of a W-2. I understand i need to file FICO as if i were an employer and that i can deduct anything associated with the work needed (home office, travel, tools, etc) and that's about it.

Anyone work as a 1099 and can offer insight? Much appreciated!

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In my line of work, guys ask for 1099's so they can dodge paying taxes. I did it for six months, until I had the government knocking on my door, demanding that I pay those guys' taxes for them. I refuse to do it now, they knock on the door, and tell me they are going to send the IRS to do a full audit. Once they've gotten some tax money, they come back for more. It's like a crack head showing up asking for more crack, they show up asking for more at intermittent periods.

I think the moral of the story is if you aren't getting way the hell more money as a 1099, find a W2 job.

Well the rules for who can be 1099 are very strict. Your employees either meet them or they don't and if you fuck around they will nail your ass to the wall. 941 taxes are some of the lowest hanging fruit for agents. Its not like companies have some magic option to choose 1099 or w2 its actually quite difficult to qualify as a 1099 worker.

Just be sure to negotiate the extra taxes in your salary and pay your estimated taxes.

Lyrical_sl said:

In my line of work, guys ask for 1099's so they can dodge paying taxes. I did it for six months, until I had the government knocking on my door, demanding that I pay those guys' taxes for them. I refuse to do it now, they knock on the door, and tell me they are going to send the IRS to do a full audit. Once they've gotten some tax money, they come back for more. It's like a crack head showing up asking for more crack, they show up asking for more at intermittent periods.

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I don't see how a 1099 makes it any easier to dodge paying taxes. The person paying you still submits your 1099 info to the IRS on their end. The IRS knows exactly what you owe them from that, before they even get anything from you personally. In that regard it works just like a W2, there's the same paper trail from your employer.

joeboo_sl said:

I don't see how a 1099 makes it any easier to dodge paying taxes. The person paying you still submits your 1099 info to the IRS on their end. The IRS knows exactly what you owe them from that, before they even get anything from you personally. In that regard it works just like a W2, there's the same paper trail from your employer.

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And the only time the IRS should come knocking on the employer's door is if they are issuing 1099's for non qualified compensation.

joeboo_sl said:

I don't see how a 1099 makes it any easier to dodge paying taxes. The person paying you still submits your 1099 info to the IRS on their end.

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In my line of work, some guys have been 1099 contractors for ten years, and haven't paid a dime in taxes. The State thinks it would be easier to get its money from the company that's been around for awhile, versus the guy that will run and hide at the first letter he gets from the IRS.

I'll admit, when I first went 1099 I deducted WAY too much and I got audited and fined for back taxes. As soon as that was over with, my "employer" who provides my 1099 got a letter just stating that the IRS *could* garnish my wages through him if I don't adhere to the repayment plan that they had set up for me. They never stated at any point that my employer would be liable for my back taxes though, but then again I was small potatoes in the grand scheme of things, I only owed them like 6 grand.

And that's where I learned that you can't deduct ALL your business mileage from your car(can't use commuter mileage, which was like 80% of my mileage) and can only deduct home utilities/rent as a % of square footage.

Getting audited sucks. Bad. The only upside was that my auditor was this cute redhead who looked fresh out of college. She still bent me over though. And I won't even get into my rant about how the IRS spent dozens of man hours(many meetings over the span of several months, and I brought her boxes and boxes of paperwork she had to sift through) in an effort to collect my $6,000($4k in taxes + $2k in fines) yet corporations dodge taxes at probably that amount of money per minute that they operate. Oh well.

Working 1099 is all about being married and getting Insurance through your significant other's plan. For most people you will be worse off.

Vinen_sl said:

Working 1099 is all about being married and getting Insurance through your significant other's plan. For most people you will be worse off.

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I hit the jackpot when my (now)wife and I found out that her employer allowed "domestic partners" to be added to her health insurance. I moved in with her over a year before we officially married to get on her insurance ASAP. Saved me several thousand dollars that year, and was much better coverage too.