1099, taxes, and you (well me really).

RyadicRyadic Registered User regular
edited August 2012 in Help / Advice Forum
So I just recently found a job where I will eventually be contracted as a 1099 employee. Which means I won't be paying taxes out of my check, but will need to come tax season. But I do know that I can avoid paying a lot of taxes if I write stuff off. Mainly gas. I'll be driving a lot for my job. Is there a really good website that I can use as a reference of things that I can write off as a business expense and how it works? This is completely new to me and I want to make sure I do it right and don't get fucked up my asshole come tax season.

If there's more information you need from me, feel free to ask. I don't really know what is pertinent, so I wasn't sure what to provide.

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  • DjeetDjeet Registered User regular
    Here you go, it's a pain in the ass and if work demands a lot of driving then your employer will likely have a reimbursement policy. They would require similar documentation that you'd use to determine tax deductions, but you're dealing with a private entity and not the IRS.

    In case you're not sure if your mileage is deductible, document the hell out of everything. There should be a journal in your vehicle indicating date and start and stop mileage of every trip related to work.

    (I am not a tax professional)

  • localh77localh77 Registered User regular
    The Schedule C instructions have some decent information on what is and isn't deductible. Mileage is certainly one of the big ones. I agree with Djeet that keeping a mileage log in the car is a really good idea (they're cheap from any office supply store/Target/Wal-Mart). The basic rule to keep in mind is that driving too and from the office in the morning/night (assuming you work at a fixed place every day) is not deductible (that's "commuting"). But pretty much any other business-related trips are deductible (to/from customers, to the store/bank, to get training, etc.).

    One other thing to keep in mind is that once you start getting paid, make sure you're paying in estimated taxes every quarter. It's not as complicated as it looks; basically just project out how much you'll owe in tax by the end of the year, and pay in 1/4 of that.

  • ThanatosThanatos Registered User regular
    localh77 wrote: »
    The Schedule C instructions have some decent information on what is and isn't deductible. Mileage is certainly one of the big ones. I agree with Djeet that keeping a mileage log in the car is a really good idea (they're cheap from any office supply store/Target/Wal-Mart). The basic rule to keep in mind is that driving too and from the office in the morning/night (assuming you work at a fixed place every day) is not deductible (that's "commuting"). But pretty much any other business-related trips are deductible (to/from customers, to the store/bank, to get training, etc.).

    One other thing to keep in mind is that once you start getting paid, make sure you're paying in estimated taxes every quarter. It's not as complicated as it looks; basically just project out how much you'll owe in tax by the end of the year, and pay in 1/4 of that.
    I am not an accountant, but if you're getting a 1099 instead of a W-2, I think mileage to and from work might be deductible.

  • bowenbowen How you doin'? Registered User regular
    It is, if I recall. Assuming you have enough to itemize beyond the standard deduction.

    FYI I say this to everyone that's getting a 1099, you might not be a contractor in the eyes of the IRS. Generally if you're not the one dictating your schedule, you're not a contractor (is what it really boils down to). I've been seeing this 1099 business a lot lately with a lot of friends. They're being told to set up an LLC and all that and turns out the company is just trying to avoid taxes and benefits and all that but still employes them like a normal worker. (IE telling them when and where to come in, IE, not a contractor)

    not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
  • localh77localh77 Registered User regular
    Thanatos wrote: »
    localh77 wrote: »
    The Schedule C instructions have some decent information on what is and isn't deductible. Mileage is certainly one of the big ones. I agree with Djeet that keeping a mileage log in the car is a really good idea (they're cheap from any office supply store/Target/Wal-Mart). The basic rule to keep in mind is that driving too and from the office in the morning/night (assuming you work at a fixed place every day) is not deductible (that's "commuting"). But pretty much any other business-related trips are deductible (to/from customers, to the store/bank, to get training, etc.).

    One other thing to keep in mind is that once you start getting paid, make sure you're paying in estimated taxes every quarter. It's not as complicated as it looks; basically just project out how much you'll owe in tax by the end of the year, and pay in 1/4 of that.
    I am not an accountant, but if you're getting a 1099 instead of a W-2, I think mileage to and from work might be deductible.

    Not to belabor the mileage question, but I think it would help to clarify since this is a common question. Mileage to and from work is not deductible, regardless of whether you are an employee or a contractor. There are a couple of exceptions, so without knowing more specifics about the nature of the work I can't say for sure that it's not deductible. But it's usually not.

    Bowen, what you're thinking of refers to non-reimbursed expenses, which an employee can take on Schedule A, but only if it exceeds 2% of your gross income. Most employees don't drive enough (without getting reimbursed) to take advantage of it. And regardless, mileage to and from work is still not deductible.

  • DjeetDjeet Registered User regular
    @bowen, are you saying you might be paid 1099, but IRS may not hold you to the full payroll and income taxes normally required of 1099 employees? Not sure the distinction you're making as every time I've been a 1099 employee my schedule was pre-determined (e.g. temp work). I'm aware of the shifting landscape for taxpayers where individuals are trying to do stuff like setup S-corps or partnerships to essentially avoid payroll taxes, but my understanding has always been that your typical 1099 employee needs to accommodate both employee and employer payroll tax obligation in addition to income tax.

    Where's that PAer who's an accountant/tax reparer? :)

  • RyadicRyadic Registered User regular
    Ok, so based on what I've read here's some more information that may clarify things:

    I'm going to be a licensed insurance agent. Monday and Thursdays I'll be driving into the office, here all day, and then home. Tuesday, Wednesday, Fridays, and the occasional Saturday I'll be driving to the homes of appointments that I set up on the office days. So from my house to their house and then to the next house etc.

    Also, I was told I could claim things like laptop, GPS, cell phones, and clothing if they are used for business. True? Does it have to be solely or primarily? For instance, I buy a tie that I only wear to work, but a wedding comes up and I wear it to the wedding. Does this negate the fact that I can claim it? It's no longer solely for work.

    So far, a lot of what you guys have given me is very good information and I'll review it all in full when I get more time.

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  • bowenbowen How you doin'? Registered User regular
    Generally, 1099 is there for "contractor" only work. If you are not making your own schedule (IE, I will be there from 9:00-3:00pm) and supplying your own tools (they are lax on this one a bit more), you are considered an actual employee. This gets shady when they do co-employers with a temp agency. We had this discussion earlier today in the programmer thread where someone mentioned that some businesses in Virginia were setting up agencies to fill their rank and file employees, only letting them work X amount of months, then telling them to get lost. Then refusing to pay for overtime and vacation because the temp agency only gets "paid" so much. In which case you were a leased employee, where both businesses employee you at the same time.

    If you're getting a 1099, I'd be willing to bet dollars to donuts that you're not really a contractor. Most people are just told they're contractors, given a 1099, and think that's how it works. And again, I think the IRS uses the distinction of "did you really supply your own schedule whilst under the contract?" as pretty much the defining objective there.

    not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
  • RyadicRyadic Registered User regular
    According to them, I'm not required to be here any specific times. However the nature of the business dictates the hours. I can show up when I want and leave when I want. It's commission based job, so if I don't make sales I don't make money.

    And there is a contract that I will sign between me and the business. I just legally cannot sign it until I get my insurance license, which should be hopefully beginning to middle of next week.

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  • DjeetDjeet Registered User regular
    edited August 2012
    @Ryadic, I would guess anything you had to buy specifically for work (a PTT phone, a uniform, something you don't already own and can use) is going to be something you can schedule. I've a friend in insurance and the way he recs is to get the company to furnish things like laptop and phone and then use for personal reasons (good chance that is against company policy) if you like.

    If you're using your laptop, and your cellphone plan, and your pants (to be suitably panted) for work then that's not going to be technically deductible. If company made you buy their uniform that would be deductible. I don't think a tie will be so, unless it is a tie you have to buy from the company.

    I use my desktop at home for work sometimes (when interacting with clients in Europe and Asia for example) and while there may be a way to deduct something there it seems to be an incredible pain in the ass, to get a $50 deduction, that doesn't matter unless I already itemize.

    Djeet on
  • localh77localh77 Registered User regular
    Ryadic wrote: »
    Ok, so based on what I've read here's some more information that may clarify things:

    I'm going to be a licensed insurance agent. Monday and Thursdays I'll be driving into the office, here all day, and then home. Tuesday, Wednesday, Fridays, and the occasional Saturday I'll be driving to the homes of appointments that I set up on the office days. So from my house to their house and then to the next house etc.

    Also, I was told I could claim things like laptop, GPS, cell phones, and clothing if they are used for business. True? Does it have to be solely or primarily? For instance, I buy a tie that I only wear to work, but a wedding comes up and I wear it to the wedding. Does this negate the fact that I can claim it? It's no longer solely for work.

    So far, a lot of what you guys have given me is very good information and I'll review it all in full when I get more time.

    Based on what you said, I would argue that the trips to and from the office Mon and Thu are commuting (not dedutible), and pretty much everything else is deductible.

    The basic question is how much something is used for business purposes. Anything that's 100% business (laptop, cell phone, etc.) can be fully deducted. If you use something partially for business, you should be able to deduct based on the business percentage.

    Clothes are a different story. Unless it's something that you couldn't wear on the street (clown costume, for example), it's not deductible. It make no difference whether or not it's something that you would normally wear, a tie/suit is not going to be deductible.

    For what it's worth, I am a tax professional (enrolled agent).

  • localh77localh77 Registered User regular
    Djeet wrote: »
    @bowen, are you saying you might be paid 1099, but IRS may not hold you to the full payroll and income taxes normally required of 1099 employees? Not sure the distinction you're making as every time I've been a 1099 employee my schedule was pre-determined (e.g. temp work). I'm aware of the shifting landscape for taxpayers where individuals are trying to do stuff like setup S-corps or partnerships to essentially avoid payroll taxes, but my understanding has always been that your typical 1099 employee needs to accommodate both employee and employer payroll tax obligation in addition to income tax.

    Where's that PAer who's an accountant/tax reparer? :)

    Just to clarify a bit here, the phrase "1099 employee" is basically a contradiction. You can be an employee (i.e., you receive a W-2 at the end of the year) or a contractor (you get a 1099 at the end of the year). If you're an employee. the employer is required to withhold taxes from each paycheck (regular income tax as well as social security/medicare tax). If you're a contractor, they don't withhold anything (hence the need to pay in quarterly estimates).

  • localh77localh77 Registered User regular
    bowen wrote: »
    Generally, 1099 is there for "contractor" only work. If you are not making your own schedule (IE, I will be there from 9:00-3:00pm) and supplying your own tools (they are lax on this one a bit more), you are considered an actual employee. This gets shady when they do co-employers with a temp agency. We had this discussion earlier today in the programmer thread where someone mentioned that some businesses in Virginia were setting up agencies to fill their rank and file employees, only letting them work X amount of months, then telling them to get lost. Then refusing to pay for overtime and vacation because the temp agency only gets "paid" so much. In which case you were a leased employee, where both businesses employee you at the same time.

    If you're getting a 1099, I'd be willing to bet dollars to donuts that you're not really a contractor. Most people are just told they're contractors, given a 1099, and think that's how it works. And again, I think the IRS uses the distinction of "did you really supply your own schedule whilst under the contract?" as pretty much the defining objective there.

    You're certainly right that plenty of small businesses pay people as contractors, even though they should be employees (and they want to avoid payroll taxes). This is something that you should discuss with your employer, though. My gut feeling is that if this is not a small business (are there dozens/hundreds of other agents?), they're position on contractor/employee is well thought out. I think that in general, insurance agents and other similar commission-based jobs are usually considered contractors. But if it's something you wanted to contest, the first stop (after talking with your employer) would be a state unemployment office.

  • bowenbowen How you doin'? Registered User regular
    localh77, am I off base with the 1099 comments? I've been seeing a ton of them lately and almost 100% of the time they're just a normal employee who is being made to pay their own taxes, and their wages are roughly on par (less after you factor in they need to pay the taxes quarterly themselves) with a standard employee. The only difference is getting the 1099 vs W2 in almost all cases I've seen.

    not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
  • localh77localh77 Registered User regular
    edited August 2012
    bowen wrote: »
    localh77, am I off base with the 1099 comments? I've been seeing a ton of them lately and almost 100% of the time they're just a normal employee who is being made to pay their own taxes, and their wages are roughly on par (less after you factor in they need to pay the taxes quarterly themselves) with a standard employee. The only difference is getting the 1099 vs W2 in almost all cases I've seen.

    No, you're right that employers pull this all the time (from the quickfinder handbook that I use: "The IRS estimates that millions of workers are misclassified as independent contractors, costing the federal government huge sums of tax revenue..."). It kind of sucks, because assuming the employer has made up their mind, your only choice is really to complain to the state/IRS.

    When you get down to the numbers, essentially what it costs you is 7.65% (which is the employer portion of ss/med that they would be paying on your behalf if you were an employer, and you have to pay yourself if you're a contractor). So if you make $50k, you're losing out on $3,825 (which is therefore how much the employer saves, which is obviously an incentive for them to do this). But on the other hand, you can also take your expenses right off the top on your Schedule C as a contractor (vs. Schedule A if you're an employee, and in that case you can only take what's above 2% of your AGI). Of course (back to the original hand), if you're a contractor you won't be eligible for unemployment if you're let go.

    localh77 on
  • bowenbowen How you doin'? Registered User regular
    Okay good.

    Food for thoughts for the OP, he might want to get in touch with the DoL/IRS and whistleblow.

    not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
  • PantshandshakePantshandshake Registered User regular
    In terms of the clothing:
    My wife teaches, and part times at a vet. Clothes you buy to look presentable at work, not deductible. Ever. Clothes you buy because you have to, IE, scrubs for the vet, are deductible. At least, that's the conversation Mr. Tax Man has with my wife every year.

  • zepherinzepherin Registered User regular
    When I was a property inspector I wrote off milleage, and the way I kept it was on a calender. Pretty simple, On teusday start milliage stop, total, wed, start stop total. Keep the total on a spread sheet, total it at the end of the year. I also talked about what I was doing a lot during lunch and diner so keep the reciept write down the names of the people there, and what was talked about. And also put that on a spreadsheet. A good spreadsheet means, tax time, you just sum, and imput into turbo tax.

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