ot 1099

[Steve Litt]

On Wed, 29 May 2019 07:26:37 -0700
techlists at phpcoderusa.com wrote:

> If you are working as a freelancer / contractor you should get a 1099
> each year.  I think the government becomes aware when they get the
> 1099 the year after your earnings.   

That's correct.

I've been getting 1099s since 1984. 1982-1984 I operated Steve's Stereo
Repair, having hundreds of customers, so I had to keep detailed track
of revenue and expenses.

> 
> Several gotchas  
> 
> 1) you will pay 15.3% for social security / medicare because you are
> the employer and the employee.  

Yeah, that's a bitch. You get used to it after awhile, but it can
become a lot of money.

> 
> 2) you may be required to make periodic tax and social security /
> medicare deposits or based on how much you make you might only be
> required to pay when filing your taxes.  

The following is my experience, though your mileage may vary. No way I
was going to calculate my taxes 4 times a year, so I just guessed and
sent in that much. If you send in 37% for income tax plus 16% for
self-employment tax (ss + mcare), or 53%. Unless you have other
income, I don't see how it's possible for you not to get a refund:
Probably a substantial one. Unless you're going to make over $168,000,
32% + 16% should be sufficient. On or a little before 12/31 I always
sent in enough so my year's estimated taxes were about 120% of the most
I'd paid in the last few years. A couple times I got boinked with
interest, but never penalties. No big deal.

Be aware that you must have paid in all your taxes on or b4 12/31, or
your underpayment will be subject to interest, and perhaps penalties if
it's a large underpayment.


> 
> I prefer depositing what I owe monthly.  I think this is the website
> that you can go to, set up an account, and make your payments:   
> https://www.eftps.gov/eftps/  (it has been a while)   I prefer
> depositing monthly because I do not want to have a dry spell and then
> owe taxes as well.  I even over pay so I get a refund.  You do not
> want to owe $2000 .... $6,000 or more at the end of the year and not
> have it. 

The preceding works well if you make the same amount every year. I can
take a loss one month and earn $13K the next (neither happens often). I
won't calculate my income and expenses for each period, so I just guess
it. My CPA works it out later.


> 
> You should read https://www.eftps.gov/eftps/  contact the IRS with any
> questions (be prepared for a long wait time) and talk to an
> accountant. 
> 
> As someone said, as a 1099 you can deduct a number of things you
> normally do not such as your cellular phone, use of home, hardware and
> software purchases, internet costs, office expenses.... etc.  Check
> with your accountant. 

Early on, I told my accountant that in the spectrum  between paying
more tax and enduring a higher risk of audit, I prefer to pay a little
more tax. Thus I've never deducted any part of my house, which I used
as an office. I've been told deducting part of your house is a red flag
for audits.

> 
> Be very careful... you do not want to get into a snag.  

That's for sure. I have a friend who, decades ago, didn't pay or report
for 3 years. The IRS made him an offer he couldn't refuse, and spent
the next three or four years living with the parents and not going to
restaurants or going out on dates, before he got out of the mess. He
ALWAYS paid his taxes after that.

I had another friend who believed the 16th amendment was
unconstitutional, didn't apply to him or any other citizen, so he
didn't pay his taxes. He tried to get me to do the same thing: I
declined. I saw him the day before he went to prison, he was panicked,
naturally. He served a few years, he's out, he pays his taxes, and
doesn't talk much about it.

Pay   your   taxes   on   time!

Someone elsewhere in this thread mentioned you could deduct stuff.
That's only stuff you really and truly use to acquire revenue. I was a
hired-gun developer before I went into Troubleshooting Training, so as
a hired-gun I wrote off most of my printer, most of my laptop, and
about half my desktop. I wrote off all the software I bought for
business purposes (back then I could easily spend $4K/year on software
I needed to write or document code for my customers). If you combine a
business trip with recreation, you can't write the whole thing off.
Your tax guy will know.

Pay the extra for a real CPA. These guys know the tax laws, they have
the right software and resources. Far as I remember, except for acouple
years when an inheritance was involved, I never paid him more than
$300.00,  and that happened only once a year. It's a bargain. He knows
what he's doing, and I've never gotten audited.

Be *very* afraid of a horribly unfair Section 1706 of the antiquated
"1986 tax reform". 1706 does everything it can to classify a
hired-gun developer as an employee, even retroactively. See

https://www.treasury.gov/resource-center/tax-policy/Documents/Report-Technical-Services-Personal-1991.pdf

Theoretically, this only applies if you work through an intermediary
--- a rent-a-pencil or headhunter. All I know is for the next 10 years
after 1986, a lot of big companies wouldn't use my services, even
directly, because they worried about my being retroactively
reclassified later. I worried about that too: I'd be screwed if all of
my expenses as a business became undeductable.

See Appendix B, page 83, of the earlier supplied link for the 20
factors to determine employee status. Almost no hired gun, unless he
works exclusively through his own employees, can answer "no" to all 20
factors. I always made sure I told my customers "I'll be coming in at
such and such time and such and such date", and then change it if their
needs were different. They never set the hours. I tried as often as
possible to work at my apartment on my computer so as to look less like
an employee. Number 19 is pretty funny. If a contractor does bad work,
you bet his company will be fired.

Another consideration is health insurance. From 2014 til now, anybody,
in any physical condition, could get health insurance via Obamacare.
Thanks to massive and unrelenting sabotage, this could go away very
shortly, and those with preexisting conditions will go back to the old
"will work for health insurance" model of pay negotiations, and those
with anything but a complete history of perfect health measurements
will not be able to get health insurance at any price.

If you think I've painted a bleak picture of 1099, consider that since
1982, the only times I've gotten W-2 forms were in 1986, 1987, and
2003. Any time I can get 1099 work, I take it.

SteveT

Steve Litt 
June 2019 featured book: Thriving in Tough Times
http://www.troubleshooters.com/thrive