I assume this fits in GQ. It’s a tax question and I understand any responses are opinion, you are not a CPA, I’ll check with professionals before proceeding, etc., etc.
I’m currently negotiating a contracting job about year in length. I’ll be paid by a 3rd party and not directly by the company where I’ll be working. My options are W2, with next to no benefits (I have heath insurance through another source), or 1099 for about 19% more.
So here’s the thing. The job is about 170 miles from my home, too far to commute. I was thinking of renting an efficiency near the location and heading home on weekends/down time. Would the rental be deductible? What else might be deductible, if anything?
If it’s not deductible, would I be better off taking the lesser paying W2 offer?
I did some initial research and couldn’t find a definitive answer, and now my head hurts.
I’m not an accountant nor a tax advisor. However, I am in a similar situation.
My understanding is that as a W-2 employee, it’s nearly impossible to deduct business expenses. As an independent contractor (reported on a 1099), you can deduct business expenses. This would include the cost of travel to where need to be to work and living expenses while there. You also have to pay the full amount of SSDI – including the fraction paid by an employer for a W-2 employee. Normally this is 7.5%, but congress lowered the amount to something like 5.5% for some period of time I can’t recall.
If the company is not offering any benefits, you’re most probably better off taking the contractor route (1099). Make sure you pay estimated taxes quarterly and keep good records. There may be some benefit to incorporating as an LLC, so consider that as well.
I’d suggest running this by a local CPA. He’ll know your local and state tax laws, which most Dopers won’t.
Off of the top of my head, the biggest differences in your situation are likely to be FICA vs self-employment tax.
I’m extremely dubious of your temporary residence being tax-deductible.
Any rooms you eat, sleep or dress in at your hotel/etc are likely non-deductible.
First off, a company giving you a choice between 1099 and W-2 is almost certainly breaking the law. It isn’t a choice; the distinction between contractor and employee depends on the facts and circumstances. However, the penalties for breaking the law will not hurt you; they’ll only hurt the employer. On the other hand, it’s a giant red flag that you’re dealing with an unethical employer.
As a general rule, temporary housing and travel expenses are deductible whether you are self-employed or not. As a self-employed person, they’d go on Sch C and offset net income directly. As an employee, they go on Sch A via Form 2106 and only help if you 1) itemize deductions and 2) have expenses over a 2% AGI floor.
You’d be able to deduct rent and meals for the time you are away from your primary residence. Mileage/auto or other transportation costs would also be deductible.
Temporary means that you intend for the job to last less than a year. If your intention is for this to be a permanent situation, you’re probably out of luck on the deduction either way.
I can’t say whether there’d be any other deductions without knowing about the type of work and the expenses you’d be expected to pay.
In my state at least, if you are required to go to their office every day, use their equipment and work on a schedule set by them, it’s not a 1099 (independent contractor), it’s a W2 (regular employee). I won my unemployment as an independent contractor because I should have been a regular employee and when they denied my request, the Department of Labor heard all about it and took my side. But 3 years later I am still paying off the taxes they didn’t deduct while I worked there.
Regarding whether it’s a 1099 or W2, the place where I will actually be working is not paying me directly. It is a recruiting firm that will be cutting the check. So, the people paying me are not setting the schedule or supplying the equipment. Does that not qualify as an independent contractor?
It sounds to me, and it’s been 2 years since I had anything to do with 1099s but I used to deal with them extensively, like you are a W-2 employee of the company who is paying you and that company is a 1099 to the company they are sending you to work at. Maybe if you go the 1099 route then you get paid directly rather than by the recruiting company? That would almost make sense, but still be weird.
If you have a CPA and are aware that no taxes are being withheld and plan accordingly, it also sounds like it is a better deal for you to go the 1099 route if that is an option available to you. Run it by your CPA and see if they agree. Like dracoi said the business expenses should all be deductible including home rentals, auto, gas, meals, etc. Keep receipts and keep it all organized give it to your CPA.
A friend of mine is in a similar boat, work-wise (though without the 170 mile commute!). She gets a 1099 vs. a W2, and she does have to handle her taxes herself (she also does other freelance work so she’s used to it).
Whenever I applied for a “temp” position, I was required to supply birth certificate and etc. as if I already had the job. And they offered benefits after a certain amount of time working through them, if you got the job they were recruiting you for in the first place.
So, I’m not sure how that works. But if I were fighting a case I’d still use my examples above as to why you should be a regular employee no matter what, if something bad happens. If you’re not doing the job on your schedule, on your terms which they agreed to, on your own equipment, etc. and on a salary you contracted, you are not a contractor.
Maybe someone who specializes in temp work can help. I’ll bow out.
If you’re an employee, they control your hours and oversee how your job is done, then report the deductions on Schedule A using Form 2106 per above. If you’re a “statutory employee”, basically a self-employed freelancer with control over your hours and minimal supervision, then report your deductions on Schedule C. Since they gave you a 1099, enter it as a 1099 on your tax software regardless of where you report it.