1099 Tax Benefits Explained

switching to 1099 income there are certain things that you need to understand before you switch over to 1099 or before you start earning paychecks and filing your first years of tax returns so let's begin [Music] first off switching to 1099 is a great thing don't let anyone tell you that being a 1099 contractor is a bad thing one of the main reasons why i like being a 1099 contractor is you're a business owner you get to turn your personal expenses into business write-offs if you know how to leverage the tax laws the right way point-blank period so don't let anyone tell you that 1099 is a bad thing they don't get to write off their personal expenses you do if you know how to make your personal expenses ordinary and necessary to your business in the pursuit of income that's code section 162a do not forget number two when you're a business owner you need to be mindful that no one is taking taxes from the paychecks that you receive typically when you're 1099 you're either earning money in the form of checks cash commission it's coming to you directly one thing that you need to know is the taxes associated with those types of checks cash and commission 1099 income earners are subject to federal taxes by the i the r and the s which we are all familiar with you're subject to state taxes if you're in a state that taxes and then you're also subject to self-employment tax which is 15.3 not 15 not 16 it's 15.3 it does not matter what state you're in if you're a united states citizen earning 1099 income you're paying self-employment tax now there are ways to get around self-employment tax don't get caught up on hearing that you can never not pay self-employment tax there are ways to eliminate self-employment tax you may have to pay payroll taxes but there are ways to eliminate self-employment tax and number three when you're a self-employed individual it's important that you do your own bookkeeping when you're a self-employed individual the only thing that holds you back from paying a lot in taxes is your business structure and your expenses strategies come later after your business has already started generating income so really you're focused on your business structure and the expenses you have associated with your business every time you're doing something that's in relation to your business that requires you to spend money for your business it is considered a business expense as long as that expense is ordinary necessary to your business but what is important for you as a new business owner is that you're tracking every single expense item that you're having on a month-to-month basis part of the reason why a lot of 1099 contractors get into tax trouble is because they don't track their expenses on a month-to-month basis they wait until the end of the year when their tax guy tells them hey i need your expenses then they have to figure out what to provide to their tax accountant rather than being reactive i recommend being proactive by figuring out what things are expenses to your business that are considered ordinary in nature necessary in nature in the pursuit of income for your business and i would work on making sure that you had a profit and a loss statement for every single month of the year what a profit and loss statement tells us is it tells us exactly how much income your business has earned and how much money has gone out the door and then from there i can review your profit and loss statement and see based on the past month how your business has trended see as a business owner wouldn't you want to be mindful of growing your business and the transactions that are occurring within your business the only way you're going to be able to do so is if you know your data and your numbers in real time like real business owners do real business owners are able to make real business decisions in real time because they have their data together in real time they do not wait until the end of the year to get their data together so this is so important for us to understand is if we want to be able to make decisions like go on vacations or buy certain things for our business we got to know exactly how much profit we have in our business what our profit and what our loss was and that is what's going to lead you to being able to file your tax returns with your tax provider now a lot of business owners wonder if it's important for business owners to keep receipts the answer is yes but it's not important for the business owner to provide all their receipts to their tax account a savvy prepared well-organized educated tax account understands that it makes no sense to be provided receipts a tax account is supposed to be provided financials financials are a profit in a loss statement and a general ledger and maybe you might have a balance sheet as well these are what we take from business owners to file tax returns receipts are for the taxpayer now part of the reason why receipts are for the taxpayer is because in the event that you get audited the irs may want to see your financials and if you do not have your financials which means you didn't do your bookkeeping you don't have a profit and loss statement a general ledger a balance sheet then you are left with your bank statements your bank statement shows what you spent your money on in relation to the bank account however your bank statements only paid a small picture of what your expenses truly are the receipt tells whoever is looking at the bank statements where the expense was the amount of the expenses and the items that were expensed so it's very easy for the irs to determine if all of those expenses are truly indeed for the business or if some of those expenses may have been personal these are how you get to a place of called best practices within your business whether you're a new 1099 income earner or not these are the things that you would need not only to be at peace to not worry about your taxes and the taxes you might have to pay from april 15 and to make sure that you're leveraging everything that's at your disposal if you have any questions on 1099 income or whether or not this would qualify for you whether or not you need an entity structure or if you should be doing your own bookkeeping feel free to schedule a free consultation with me by visiting the link in my bio if you enjoyed this video do something for me go ahead and give me a thumbs up go ahead and click the subscribe button because i'm working on more videos like this for you and i look forward [Music]

Channel: Karlton Dennis

Views: 88,937

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Id: _yHPIvtiKjs

Length: 7min 0sec (420 seconds)

Published: Wed Jan 27 2021