Guide to 1099 Contracting & Taxes

Dear Team REDLINE,

As we approach the new year, I want to highlight the benefits of being a 1099 contractor and share some tips to help you prepare for tax season.

1099 Benefits

Flexibility: As a 1099 contractor, you’re essentially your own boss. You have greater control over how and when you work.
Earning Potential: You can often take on multiple opportunities, allowing you to maximize your income.
Tax Deductions: Unlike W2 employees, 1099 contractors can take advantage of tax deductions to reduce taxable income.

Tax Preparation

With tax season around the corner, it’s important to prepare accordingly to avoid surprises. Here’s what you should keep in mind:

Save for Taxes: As a 1099 contractor, taxes are not withheld from your pay. You’ll need to set aside money for:
- Federal income tax
- Self-employment tax (Social Security and Medicare, typically 15.3%)

A general rule of thumb is to save 20-30% of your earnings for taxes. Consider making quarterly estimated tax payments to the IRS to stay on track.

Hire a CPA: A certified public accountant (CPA) can ensure you’re taking advantage of every deduction and avoid costly mistakes. They’ll also help you with proper documentation and filing quarterly taxes if needed.
Keep Detailed Records: Maintain organized records of your income and expenses throughout the year. Tools like QuickBooks, Wave, or even a simple spreadsheet can help.

Deductions You Should Take Advantage Of

Here are some common and beneficial deductions for 1099 contractors:

Home Office Deduction: If you work from home, you can deduct a portion of your rent/mortgage, utilities, and internet. This is calculated based on the percentage of your home used exclusively for work.
Vehicle Expenses: If you use your personal vehicle for work, you can deduct:
- Mileage (standard rate for 2024 is $0.655/mile)
- Gas, maintenance, and insurance (if you choose the actual expense method)
Supplies and Equipment: Any tools, materials, or equipment you purchase for work (e.g., laptops, phones, uniforms) can be deducted.
Education and Certifications: Costs for training, certifications, or professional development directly related to your work.
Travel Expenses: If you travel for work, you can deduct airfare, hotels, meals (50%), and other related expenses.
Business Meals: Meals during client meetings or business discussions are typically 50% deductible.
Phone and Internet: If you use your phone or internet for work, you can deduct the portion related to your business.
Health Insurance Premiums: If you’re paying for your own health insurance as a contractor, you may be able to deduct premiums.
Self-Employment Retirement Contributions: Contributions to SEP IRAs, SIMPLE IRAs, or solo 401(k)s are tax-deductible and a great way to save for retirement.

Transition to Full 1099 Staff

As we plan for 2024, we aim to transition our remaining W2 staff to 1099 contractors. This change is part of our broader effort to streamline our team structure. For those still on W2, this transition will require adjustments, but we’ll provide support to help you make this shift smoothly.

Further Reading and Resources

To better understand 1099 contractor taxes and deductions, here are some helpful links:

If you have questions or need recommendations for CPAs, don’t hesitate to reach out. Planning ahead can make all the difference in ensuring you take full advantage of the benefits of being a 1099 contractor while staying prepared for tax season.