When your income is reported to you on form 1099 this means you do not have an employer paying half of your social security and medicare tax. You are therefore responsible for the entire amount and you pay it as what is called self-employment tax. This is why 1099'd workers pay such higher taxes. They pay their regular federal and state income tax plus a 15.3% self-employment tax--it's outrageous!
Fortunately there are some legal loopholes as well as some new tax laws to really help out the 1099'd worker. First, the new qualified business income deduction will allow most self-employed individuals and businesses an extra 20% deduction off their net income. It is a little complicated with some tedious rules, but that's why you have us to help go through it with you and see if you can qualify.
Second, and this is the big one, there are ways to nearly totally exempt yourself from self-employment tax. Imagine saving 15.3% on all your taxable self-employment income--that's a huge savings! You can then take part of that and reinvest it into an IRA for further tax savings and before you know it you're one of those people who has their money making money for them.
So if you receive a 1099 each year please take advantage of a free consult with us. We can evaluate your tax situation and let you know exactly how much you can save and how it all works before you commit to anything. We all need to pay our fair share, but we'd love to help reduce what your fair share amounts to.