First-time consultant paid via 1099- need some advice

Forum|Forum|7 years ago
July 22, 2018
5 replies
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Hi all, I recently got laid off for the first time and was recently offered a 6-month gig that will be paid via 1099. All I have done is open a business bank account after creating a LLC (Sole Proprietor). I need to figure out what type of software to use, and I also would appreciate some general advice.

Let's say I get paid $10,000 per month for six months via 1099. So $10,000 will be my monthly revenue. Which version of the software should I get? I am the only employe and besides the usual expenses, I will probably have to track mileage too. My wife is W2 salaried. Could I still file taxes jointly? I still probably don't know what questions to ask but this is a good start for me. With a dedicated bank account and a LLC, I will keep business income and expenses separate and hopefully take advantage of all the deductions I can get.

Thanks for the help and advice!!

Rustler

As a sole proprietor you are not an employee.

What you are paid monthly is your income, and you log your expenses as they occur. The 1099 is just a reporting form that you and the IRS gets. You will file taxes using schedule C with the IRS, basically moving your P&L to the form. I would suggest you download it from the IRS and set up you chart of accounts to match the blocks on the form, you can use sub accounts if you want to track details of that account.

As a sole proprietor you will need to download IRS form 1040-ES and do quarterly estimated taxes, there is a worksheet in the instruction for calculating how much.

I would suggest desktop pro, but QBO essentials will also do the job at a higher cost. a non partisan comparison of QBO vs QB desktop
http://onsale-apparel.com/Rustler/qbo-or-qbdt
(cost comparisons are at the end of the article)

I would stay away from QBSE as it is extremely limited and not complete per the schedule C at all.

Yes, the schedule C is just one more form as part of your form 1040 when you file, filing status can stay the same.

FlyerAuthor

Rustler- thanks so much! I appreciate all this information and will look into the things you mention. I'll also look at the desktop Pro. Very helpful info indeed. Cheers

Rustler

You're Welcome

EmilyCowan

Hey @Flyer - a very warm welcome to QB Community! First of all, I'm sorry to hear about your recent layoff and congratulations for landing on your feet. You've found the right place to connect with and learn from other self-employed folks who've "been there, done that."

Sounds like you're in much the same boat as new QB Community member @DJayne, who posted last week about receiving her first 1099. She got some great advice from @lynda11_2 and @Peter_G_Stone on setting up her finances for self-employment (although it sounds like you're ahead of the game on that with your new LLC!).

What type of consulting do you do?

FlyerAuthor

Emily, thanks for the warm welcome and the kind words. A huge Silicon Valley bought our small 18-year-old extremely profitable company and proceeded to shut us down completely, soon after regular meetings on how to grow the business more. So it was a real shock and took me a while to process it, and to start sleeping better. Now I at least have a 6-month buffer and who knows...it may turn into a perm thing. The information here will help me maximize my income, while keeping everything well organized. I'll take a look at the posts you mention.

I'm going to be doing mostly project management and client management for the company that actually won the business that we were forced to give up when our parent company shut us down. So I'll manage the client relationships, escalations, and the overall integration work to make sure we hit the mandatory deadlines.

EmilyCowan

@Flyer wow, it must have been tough to watch everything you'd worked so hard to build up suddenly shut down like that. I guess that's the best (and also potentially the most daunting) aspect of working for yourself: complete and total self-determination.

It does sound like you've GOT this, though. Who knows? Maybe you'll prefer self-employment in the long run :smileyhappy:

If you haven't yet, I highly recommend joining our Momentum to $1 Million discussion group hosted by rockstar business coach Julie Gordon White (@201192). Live "office hours" every Wednesday and new motivational posts every day of the week - just click the green Join button at the top of the page and you're in!

Peter_G_Stone

@Flyer I'm sorry about your situation, it sounds very difficult, but I congratulate you on landing on your feet so quickly! You asked some great questions. From a tax standpoint, your filing status does not need to change. In fact, your wife's withholdings will help offset that pesky SE tax you will now be facing as a sole proprietor. Obviously, you will want to speak with a tax expert with more specifics, to create the best tax planning strategy you can moving forward. As @Rustler said, quarterly estimated tax payments are a must! If you don't pay them you will have interest and penalties come April, but more importantly it is easier and less painful to break up your tax liability throughout the year!

Regarding QB, it is a personal preference. I would suggest QBO Essentials. You can integrate a mileage tracker to help you with that area of your business, plus it has plenty of capabilities for what you need. A less expensive option would be QBSE. I don't know much about the breadth of your gig, but SE will track income and expenses, plus mileage. It will provide you with an Income Statement for your Schedule C to help you come tax time. Desktop Pro is a very solid option, but if you do not continue past this 6 month commitment of working for yourself, it will not be a value buy for you. There is more than enough info on the QB website to help you choose. Best of luck!

lynda11_2

Hi @Flyer:

I hate to disagree with @Rustler but I have to this time. QB Online Self-employed is the perfect program for you to get started with. It revolves around Schedule C filers. Is it a robust accounting system? No. But it will help you track your income and expenses and let you know how much you need to pay for your estimated taxes as the income starts to be generated. It has an amazing mileage tracker too. You hook up the bank and credit cards and go! You can also invoice your customers directly from the program and they can pay you with Intuit Merchant services. Here is a link. You can even bundle it with Turbo tax.

Lynda

Rustler

@lynda11_2

{smile}

Here is the issues I have with QBSE, I do agree it revolves around the schedule C, spinning down the drain so to speak {humor}

QBSE does not follow the schedule C in its entirety

QBSE does not allow for any new accounts (categories) to be created
QBSE does not have a balance sheet so you can not enter the cost or the depreciation for a car/equipment, nor can you enter and maintain a bank balance
QBSE does not do inventory or cost of goods sold
QBSE does not do any associated IRS forms, like home office deductions or depreciation

QBSE does not do sales tax either (not schedule C related but critical to a business)

FlyerAuthor

Peter & Lynda- thanks so much for your feedback.

Some details about my 6-month contract:

I will basically be managing a large project (from home in Denver + some travel to Atlanta where my employer and the clients are) so I will have expenses like home-office expenses, mileage, some meals, etc. I still need to figure out what expenses qualify. However, there will been no sales tax or inventory (that I can think of). I did recently buy a new vehicle under personal, but I don't think that can be used for depreciation though mileage can be. I'll run home phone and mobile expenses (both used for business) but really don't have equipment for depreciation (laptop provided by employer). At the end of the 6 months, they will MAYBE hire me permanently but that is a 50-50 shot. If I relocate to Atlanta, it will be a 90% likelihood but if not, I thin it is 50%, depending on how valuable they find me.

I'm still reeling for the massive (and depressing) loss of converted and granted stock options I lost...that was going to fund my retirement so I'm now trying to maximize my deductions and reduce expenses. I think it was over 500K worth. While I cannot recover from that, I am trying to not let it affect my normally-cheerful outlook.

Given all these contract-related details, does any recommendation change?

E

E145_2

I suggest you develop a relationship with a tax accountant.

My suggestion is the QB online for which the cost is minimal and can be discontinued when no longer needed if you regain full time employment (w-2).

You've made the right decision to incorporate, but should also consider whether requesting S Corp election is advantageous as it would help to manage/reduce payroll taxes on 1099 receipts. The S Corp will require you to file an additional return on Form 1120S which is due March 15, each year.

Please remember it's never too early to begin tax planning. Self employment income/1099 incurs the additional employer portion of payroll taxes which most are prepared for. Consider paying estimated taxes if worried about overspending from the 1099 receipts.

The decision to file jointly should consider a number of factors including credits which you might forego if you elect to file separately.

My advice is to track your business expenses carefully. Look for opportunities to deduct expenses which were not considered previously such as magazine subscriptions, etc. Also, I don't know how much your car is used for business or the age etc. but automobile depreciation is typically a significant deduction if you qualify. Good luck and feel free to shoot follow up questions.

EmilyCowan

Thanks for chiming in, @E145_2!

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