1099 contracted employee allowable deductions

[FargoI]

I am planning on working a limited number of hours (12 hours/wk) as a '1099 contracted employee.'

I hear your whispers in the background, 'why on earth would I want to do this?' The opportunity aligns with my interests, comes with great flexibility in terms of scheduling and wont interfere with my retirement activities/plans. My DW is supportive of this venture. While not a driving force, the compensation is reasonable for the intended activities.

I understand 1099 contract employees are responsible for paying the full tax load (i.e. both portions of SS and Fed/State/Local income tax) and I understand expenses such as mileage would be legitimately deductible and easily recorded using the all inclusive IRS rate per mile. I would like to gain a better understanding of the following potential deductions for a 1099 contracted employee:

-> the potential of deducting some or all medical insurance premiums associated with my wife's post retirement/pre-Medicare coverage.

---> the prospect of deducting miscellaneous medical expenses such as RX/Optical/Dental cost sharing and provider copays.

Any insights will be appreciated. Thanks in advance for sharing.

 

[SecondCor521]

You'll likely receive a 1099-NEC from the company using your services and the aggregate amount they pay you should be in box 1.

You'll need to fill out Schedule C, which is where you'll report your business income and business expenses. https://www.irs.gov/pub/irs-pdf/f1040sc.pdf

You'll need to fill out Schedule SE, which is where you'll calculate the amount of self employment taxes due. You'll pay both halves of Social Security and Medicare taxes, but it will only be on 92.35% of your Schedule C income, and you'll get a deduction for 1/2 of the SE taxes on Schedule 1 line 15 (https://www.irs.gov/pub/irs-pdf/i1040gi.pdf page 88).

Mileage is deductible at the standard business mileage rate in most circumstances. See Pub 463 for details on which miles, how much, etc at https://www.irs.gov/publications/p463#en_US_2020_publink100033913. It's wise to keep a mileage log that is written and contemporaneous and keep that with your taxes.

There is a self-employed health insurance adjustment that you may be able to claim. This would be for out of pocket health insurance premiums, not for out of pocket medical expenses like copays. See Schedule 1 line 17 instructions for more details (https://www.irs.gov/pub/irs-pdf/i1040gi.pdf page 89).

You might want to look at the expenses area of Schedule C to see what other reasonable and necessary expenses may be deducted from your SE income. In general, an expense must be ordinary - commonly used in the type of business you're doing - and necessary for the business to be able to be deducted. https://www.irs.gov/pub/irs-pdf/f1040sc.pdf

 

[FargoI]

No end to what one can learn from this group

Thanks so much for the detailed explanations and links to underlying documentation and forms. Truly there is no limit to what one can learn from others in this community. Thank you to the group admins and moderators as well.

 

[target2019]

You may want to purchase a copy of 2021 tax prep software, and run through the interview mode for business section. If you have that already, make a copy of your return and add in the extra business income, and so on.

I always used a separate CC and checking account for my business income. If you have a separate area set aside for work, that could result in a home office deduction. If you need to firewall your business work on the computer, you may be required to purchase another computer for that purpose by the employer.

Some find that the hourly rate offered does not feel so right after subtracting out all of the business expenses and taxes.

 

[Letj]

Thanks so much for the detailed explanations and links to underlying documentation and forms. Truly there is no limit to what one can learn from others in this community. Thank you to the group admins and moderators as well.

Yes I agree! This is an awesome community. I’ve learned so much on here as well. Thanks for raising this question and great you’re being proactive. From reading the responses to your post, it sure seems like I might have been leaving money on the table. I wish I was more proactive in checking my situation out. I am a landlord and no longer w**k at a 9-5 job. I get to have post employee medical coverage and a small pension from my employer but I pay nearly all the premium out of pocket (after tax). I am technically self-employed but as a landlord, I don’t pay self-employment tax since I file schedule Es. I deduct any administrate expenses (e.g. legal, office supplies, etc) by allocating to select properties. How can I too deduct all my medical related expenses instead of just the amount exceeding 7.5% of AGI? I have significant medical expenses.

 

[cathy63]

...How can I too deduct all my medical related expenses instead of just the amount exceeding 7.5% of AGI? I have significant medical expenses.

Nobody can deduct all their medical related expenses. Medical expenses that are not insurance premiums are subject to the 7.5% floor on Schedule A. Medical expenses that are insurance premiums can be deducted from earned income reported on Schedule C or they can be lumped in with other medical expenses and deducted on Schedule A.

As a landlord, you have unearned income from your rentals, which you report on Schedule E. Under current tax law, you can't treat your landlord income as earned income, so you can't deduct your insurance premiums there. There's an exception if you're a licensed real estate broker/agent and also work with other properties that are not your own. I'm not familiar with how exactly that works, but it sounds like it doesn't apply to you anyway.

 

[Letj]

Nobody can deduct all their medical related expenses. Medical expenses that are not insurance premiums are subject to the 7.5% floor on Schedule A. Medical expenses that are insurance premiums can be deducted from earned income reported on Schedule C or they can be lumped in with other medical expenses and deducted on Schedule A.



As a landlord, you have unearned income from your rentals, which you report on Schedule E. Under current tax law, you can't treat your landlord income as earned income, so you can't deduct your insurance premiums there. There's an exception if you're a licensed real estate broker/agent and also work with other properties that are not your own. I'm not familiar with how exactly that works, but it sounds like it doesn't apply to you anyway.

Thanks Cathy! Really appreciate the response. That’s a bummer! Who do I talk to at the IRS to change that law?[emoji3]. It sure feels like I am self employed with all the work I put in managing, supervising maintenance and repairs, chasing down tenants, qualifying renters, renovating and selling. There’s not anything passive about those activities. Maybe that’s where the idea that landlords are rich came from. They just sit back and collect rent checks.

 

[SecondCor521]

Who do I talk to at the IRS to change that law?[emoji3].

Congress writes the laws, not the IRS.

 

[Letj]

Congress writes the laws, not the IRS.

That’s right. There’s not much hope for a change there. Not too many landlords for them to care.

 

[freedomatlast]

I agree with the others plus you can also claim a home office deduction based on $5.00/sq. ft. of your home office with certain restrictions, or you can calculate the deduction using a more complex formula.

Depending on the nature of the work, you also may qualify for the Qualified Business Income (QBI) Deduction so be sure to check out IRS form 8995 and the associated rules around that.

I've been a 1099 contractor doing engineering work and have qualified for both deductions above.

Also, you may want to sign up on EFTPS to make your estimated quarterly Federal tax payments if you are not already making quarterly tax payments.

 

[SecondCor521]

I agree with the others plus you can also claim a home office deduction based on $5.00/sq. ft. of your home office with certain restrictions, or you can calculate the deduction using a much more complicated formula.

Note that the restrictions on the home office deduction (even the simplified method) are strict - the area of the home office must be used exclusively for the business, which is a high bar to meet.

The QBI deduction is a nice one to note.

 

[RetMD21]

Turbotax made getting the QBI easy for me.

 

[pb4uski]

Also if you use a computer or laptop in your work it might be a good time to upgrade your equipment... computer, printer, etc.

https://ttlc.intuit.com/community/t...-i-bought-primarily-for-my-business/00/127110