## Overview As an independent contractor, you need to handle the following taxes because you are seen as a business: - Income Tax (same as W2) - Medicare - Social Security To most effectively manage your tax status as an independent contractor, you should set up an LLC. Set up a business bank account for this new business entity. The bank account will be used to receive all business income and pay all business expenses. Additionally, you could change the tax status of that [[LLC]] to an S-Corp if it makes sense for your situation. > [!warning] Do NOT put investment properties into this S-corp. Now, your business can then use their income to pay yourself in two ways that may impact how your taxes on business profits are paid: - Salary - used to pay you as an employee of the company. This is subject to the aforementioned taxes. - Distribution - an additional method of compensation that is *not* subject to the taxes, thus lowering your tax burden. The cost of this approach is the purchase of services and software needed to run a business: - Business Accountant - Additional cost to file an S-corp return - Bookkeeping Software - Bookkeeper? ## Tax Deductions - Travel - Car Mileage - Home - Home Office - Internet - Utilities - Cell Phone - Software # Paying Yourself from LLC It is recommended to pay yourself via check or ACH transfer to allow for easily tracking member distributions / draws using memos on the payment methods. > [!warning] Leave at least 15-30% of your business' income in the business bank account to pay the taxes. If you are paying yourself while being taxed as an S-corp, you'll need to ensure you are paid a "fair salary". # Filing Taxes If the LLC is not being taxed as an [[S-Corp]], then the taxes on the LLC are simply pass-through. The profit of the business (income - expenses) will be reported on Schedule C form part of the 1040 Tax Return and be associated with you as an individual. If an [[S-Corp]] is used, then requires 1120-S form... TBD. Not pursuing this route at this time. ## Sources Reviewed - [1099 Tax Deductions Explained (2023) - YouTube](https://www.youtube.com/watch?v=M8Kl6qpYg_8) - [I'm 1099 how do i turn that into a company? - YouTube](https://www.youtube.com/watch?v=zUjWY_GYVWo) - [ACCOUNTANT EXPLAINS Why 1099 Income Is Better Than W-2 For Taxes - YouTube](https://www.youtube.com/watch?v=EW-lnxIZ6qg)