ot 1099

[Steve Litt]

On Wed, 2019-05-29 at 06:43 -0700, Andrew McRobb wrote:
> Yes, you still have to report your earnings and pay taxes and I would
> assume the feds would get idea how much you make on your employers
> bank account statment. I wouldn't mess around not paying taxes, it could
> very much royally bite you in the butt by the IRS down the road.
> 
> I suggest asking around for a good tax accountant to help you with this.

I've been 1099 ever since 1982 and I concur with everything Andrew says, and would
like to add more. When I say "you" in this email, I mean anyone contemplating 1099
for the first time.

First, to amplify what Andrew said: Taxes are serious business. One of my buddies
worked 1099 and didn't report for a few years. Then he had to move back with his
parents, eat rice and beans for meals, and hand over most of his pay for the next 3
years to the IRS. Another buddy was one of those "soveriegn citizen" guys who
believed federal income tax was unconstitution so he didn't pay it. I saw him the
day before he went to prison, and he looked pretty panicked. Back when I lived in
California and had state income tax to pay, I banked 1/2 of every check in a special
bank account whose only purpose was to pay taxes. Now, in Florida, it's 1/3. Sure,
you get some of it back, usually, but better safe than sorry. If you can't live on
1/2 what they're giving you, it's either a bad deal or you don't have the discipline
to go 1099.

1099 isn't a panacea. You pay double the social security and medicare taxes you
would have paid as an employee, because as an employee your employer pays half. As a
1099 you don't get health insurance. The year before Obamacare kicked in, I payed my
first $36,000 of income to premiums for a $5000 deductible guaranteed issue family
policy, and was thankful to get it. Even after Obamacare, I paid about half of that,
which still isn't cheap.

Don't take Obamacare tax credits until you file your taxes. My first year on
Obamacare I took the tax credits every month, found out I'd made too much money to
qualify for them, and had to come up with $18K plus my normal taxes at the end of
the year. Which, incidentally, meant I paid only about 66% of the premiums I paid
pre-Obamacare. Don't EVEN think about going uninsured: A busted leg could set you
back $50K and a heart attack even more. And don't get these faux insurances not
Obamacare qualified: They're usually more like a gift card than insurance.

Make sure the work you do is not really employee work, because you could get
reclassified and if you have large business expenses (I used to spend about $2k on
hardware and $2K on software per year), you could all of a sudden find those non-
deductable. Make sure you unserstand that assinine section 1706 of the 1986 "tax
reform" bill, or you could get reclassified and be in a world of hurt. 

https://en.wikipedia.org/wiki/Tax_Reform_Act_of_1986#Tax_treatment_of_technical_service_firms_employing_certain_professionals

https://www.natlawreview.com/article/department-labor-issues-final-rule-identifying-independent-contractors-employer-s

Truth be told, I'm surprised when I hear of a technologist being able to work 1099
given the existence of section 1706.

Get paid by the hour. If you're on salary you're really an employee, and sure to get
exploited. If you flat bid the job, they'll scope creep you to death. Or they'll get
you to spend hours or days pricing the job, and then give it to someone else. I've
never heard of a one-man-show contractor flat bidding a job ending well. 

And remember, some customers try to stiff you. I had a great customer who
unfortunately got bought by some con artists working out of a post office box, and
the new guys refused to pay my invoices for work I'd already completed.

Which brings up the next thing: Invoice early and often, and if they dawdle paying
you, stop working for them until they pay. And, of course, this implies that you
successfully complete and demonstrate milestones so there's constant evidence of
your worth.

Being 1099 requires financial discipline. You don't know when you'll work and when
you won't. From May 5 1993 to mid April 1994 I didn't make a dime. And contractors
like me aren't eligible for unemployment.

If they give you a written contract to sign, read it carefully. If it contains a
non-compete, walk the hell away. Part of the reason you 1099 is to have multiple
customers. If they have a non-disclose, read it carefully to determine to what
extent it's really a non-compete. If they have an indemnification clause, walk away.
You're not getting paid to be an insurance company, and shouldn't function as one.
If they're risk averse they can buy their own insurance. If they have one of those
"everything you copyright or patent belongs to us" things, get the scope narrowed or
walk. If I'd signed things like that when I was a software contractor, the 9 books
and courseware I sell for a living would belong to my ex customers. By the way, this
goes for employees too.

So after all this caution, you're probably asking why I go 1099. Well, part of it is
the nature of my work. 1982-1985 I operated Steve's Stereo Repair, and couldn't very
well demand a w2 from everyone who paid me fifty bucks to fix their receiver. In the
21st century I make my living selling courseware, giving courses, selling books. No
relationship lasts more than a week. It's just not an employer-employee situation.

But 1984-1998 when I was a software contractor, ah, there's the rub. Everyone wanted
me to sign on as an employee, and I always said no. Here are some of the reasons:

* I don't want to be micro-managed by some fool with half my brains.

* I don't want to get worked 80 and get paid 40.

* If I'm going to be on a death-march project, I want to get paid for every minute.

* If I'm gonna be on call, I want some money for that.

* I don't want my boss's hand on the on-off valve for my entire income. Real job
security means lots of customers and/or lots of lines of business.

* As a contractor, I don't have to deal with HR.

* As a contractor, if a quick opportunity comes up I can grab it by rearranging my
other work. Don't try that if you have a regular job.

* As a contractor, I get much more respect than do the company's captive employees.

* As a contractor, if I need a password or other resource, I just remind them of my
hourly rate and what it costs for me to sit idle, and by gosh, I get the resource,
even while their captive employees languish in that famous "I'm too busy to give it
to you now" mentality.

For anyone considering going 1099, hope this helps.

SteveT