1099 vs W2

Brando_sl said:

I'd say you always choose a 1099 if possible. You can then file a schedule C and you don't have the limits for deductions for work place expenses like you do on the 2106 form you file if you are w-2'd.

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I am by no means an expert on this, but this advice is also what I have heard. Just keep in mind if you do take the 1099 that you won't have any with-holdings and will (most likely) owe taxes so keep some money set aside for that.

I worked in HR/Employee Benefits for 10 years, and have owned a small business (restaurant) for the past 3 years. I am by no means an expert in this stuff, but do know some.

First off, you really should find a CPA to talk to about this. They will be able to tell you exactly which option will benefit you the most.

If you go the 1099 route you are basically being taxed as you are self employed. You will be able to use just anything related to work expenses as a deduction. You need to calculate exactly what you think you spend and see if you can come up with enough in deductions to offset the difference in pay. Determine what tax bracket you will be in and you can estimate your taxes fairly accurately.

Also find out what insurance is going to cost, but that may be a challenge with all the ACA changes right now. Your state will be setting up an exchange by 2014 that you will be able to use, if your state refuses to set up an exchange (like mine) then you will be able to use the federal exchanges, but we have no idea when we get details on those.

Also, it can be a huge pita to buy a house or car when you are self employed. You have to show multiple years of 1099's to qualify in some cases.

Are you comfortable lying?

The benefits(or lack of) and your age will basically determine which is best.

My father is self-employed(1099), but is also 60 years old, and he has to spend $15,000 per year($1200 per month) for health insurance for him and my mother, and that is with a ridiculously high $5000 deductible apiece. No dental, no vision.

On the flip side, I'm also self-employed, but only 35 years old, so I only pay about $3000 a year for personal health insurance on myself.

Yeah, we both get to claim that as an above the line deduction/income adjustment, but if you are foregoing all benefits for an extra 10k, depending on your age and if you need to insure a spouse and/or children, it might not be an easy decision.

You either qualify job wise for 1099 or you don't and must get a W2. Check the IRS guide lines for is as they are VERY stringent. Based on your post its unlikely you even qualify for a 1099 work.

http://smallbusiness.chron.com/1099-job-10771.html

http://www.irs.gov/Businesses/Small-...or-Employee%3F

If you get a 1099 for work you will end up paying self employment tax which is the tax your employer would normally pay for you in addition to your own contribution. The extra amount is around 7.5% of your total income and you normally would pay the other half on your own. So 15% total will be owed for social security and medicare taxes and its paid quarterly. You also have to do your own federal tax withholding and pay that as well. Expect your costs to file taxes to increase slightly and they will be slightly more complicated.

Add that to your benefit costs, PTO, health insurance etc. No way 10 grand covers all of what your actual costs will be. Just self employment taxes alone will be 1/3 or more of that amount and that is not even taking into account any other benefits.

Deductions are nice but they are expenses and there are strict limits to a lot of things in addition many of the deductions you would take are already deducted pre tax from your check (insurance being a big one). You might be able to deduct some things you normally couldn't but in all honestly the odds of you saving a ton of money on deductions is pretty unlikely. Sure you can try to write off some electric, internet, some mileage and gear but the reality is the amount saved is only (your tax rate [amount spent x amount used for business]). The IRS also places the burden of proof squarely on you to prove the legitimacy of your deductions.

Take all that and add it all up and see where the money falls. My guess is you should stick with w2. They are offering you 10k for a reason and its likely because they are paying more than that in benefits.

It sounds like you will still be going into their office to do the job, regardless of 1099 or W2? If that is the case I find it very unlikely you would be a (legal) 1099. It also removes one of the better deductions of a 1099'er- home office. What people are saying about the double taxation is correct. You'll also have to send in estimated taxes 4x a year. I, like others, think $10k isn't enough to go the 1099 route. I think if you sat down and listed out the value of the benies you'd get as a W2, you'd go over $10k np. There's also less hassle as a W2, and that may have some $ value attached to it, for you.

I almost want to tell you to go talk to a tax professional in person and give all the details, but really, my gut is telling me they'll say the same thing I am - go W2.