Taxes can be a challenge for a lot of people. There’s an added level of complexity if you are or are thinking about becoming an independent contractor. The tax rules and planning differ from a W-2 employee. But what are they?
Today on the episode we will dig into what those differences are. We will look at the benefits of being an independent contractor and some of the tax challenges you might also run into. As an added bonus I’ll take a deep dive into the Qualified Business Income deduction (“QBI”) that came out last year with the new tax changes. We will go over the good, bad and what you can do to optimize the QBI for your taxes this year.
What We Will Cover
- The difference between an independent contractor and an employee
- An explanation of tax withholding
- Who’s required to send in estimated tax payments and how frequently
- What it means to “safe harbor” your estimated taxes
- How Social Security and Medicare differ for employees and contractors
- The tax rates and income thresholds for Social Security and Medicare taxes
- The deduction for paying self-employment tax (and the definition of self-employment tax)
- How a 1099 independent contractor can offset business expenses
- What to expect for health care plans for an independent contractor
- The difference in retirement savings for an employee vs. an independent contractor
- Retirement plans for employees vs. retirement plans for independent contractors
- When and if someone should make the S Corp election
- The main difference between an LLC and an C Corp
- The biggest benefit of an S Corp election
- What if you’re an employee AND an independent contractor
- The Qualified Business Income (QBI) deduction explained
- The limitations on the QBI
- The types of businesses that fall into the “specified service trade or business”
- The math behind the QBI deduction
- The phase-in ranges for the QBI deduction
- An explanation of unadjusted basis and its role in the QBI deduction
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