As a 1099 contractor, no taxes are withheld from your paycheck or sent in for you by an employer, so you are responsible for paying the full portion of your federal income tax, Social Security and Medicare taxes on your own.
This doesn’t sound great for independent contractors, but there is an option to remove a great deal of the financial burden and actually save you a lot of money in the long run.
LLC’s are treated as either sole proprietorships or general partnerships for tax purposes. Therefore, all revenue goes directly to the owner and avoids double taxation or corporate income tax. In addition to this, if you elect to have your LLC taxed as an S-Corporation, you can avoid self-employment taxes (15.3%) altogether.
Additional benefits include:
You can write off anything that helps you work (ex. phone, computer, chargers, work supplies, etc)./
You aren’t taxed on what you make, but instead on what you have AFTER deductible expenses are considered.
New tax bill → Now a 20% deduction taken before you are taxed.
One thing we cannot emphasize enough is how important it is to have a professional tax service guide you through this process. TurboTax CANNOT help you make this decision!