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Old 02-20-2008, 02:28 AM
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Smile 1099-Misc Income and IRA

I get paid via the 1099-Misc Income. Other wise so far im a independent contract worker.. First time ever working this way.

Im wanting to know whats the best way to go for IRA savings.
In the past I contributed to my IRA what I saved.. and then when I got refund I then put that into IRA..

Now that Im a 1099er Ive noticed I what I saved will go to pay my tax. Not into IRA as planed And no refund.
Id like to know whats the best tax plan for a 1099er worker with IRA's
Is it better to go back to Employee status or stay 1099

Any tips or help will be nice



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Old 02-29-2008, 04:23 PM
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Well, as an independent contractor, you are entitled to deduct ordinary, reasonable and necessary expenses that are directly related to the production of income! What this means is that you are able to deduct the following expenses that will reduce your taxable income;

1. Auto expenses-using mileage method or actual method.
2. Meals and Entertainment expenses.
4. Establish a retirement plan to shelter your income from taxation.
5. Office expenses.
6. Cell phone-used in connection for business use.
7. Supplies.
8. Computer, if you used it for business.
9. Any other expense related to your consulting expenses.

As you can see, there are a lot of expenses that you can deduct that you will be be to reduce your income subject to taxes.

In conclusion, it would seem that reporting your income in the form of a contractor in general, would tend to save you more in taxes than if you would be statutory employee paid as a W-2 employee!

You have to pay taxes no matter what, but as an independent contractor you would be paying 15.3% of S/E taxes plus regular federal and state income taxes. So, the savings may not be easily evident.

As a Statutory employee, you would be paying on 7.65% of S/E tax and would have the regular federal and state withholding. Thus, on the surface, you would be benefiting by 7.65% in claiming to be a statutory employee.

But, remember all your income is subject to tax as a statutory employee and no deductions are allowed for this status. If your expenses are less than 7.65% of the S/E taxes, clearly you would want to be a Statutory employee, otherwise, I would remain as an independent contractor.

Regarding saving for an IRA, I think a SEP IRA is the best way to go as you can shelter considerably more than a regular IRA.

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Old 03-02-2008, 01:35 AM
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I already have Reg IRA's established . So would I be able to get a bigger tax credit if I started a SEP-IRA for 2007 ?



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