1099 Income and Schedule C

Sole proprietors and single-member LLC owners who do not file a corporate election are subject to 1099 reporting and pay self-employment tax on the first $160,000 of annual income. Becoming familiar with IRS guidance pertaining to recordkeeping and deductibility of business expenses can greatly reduce the tax burden of self-employment income which is taxed at more than 40% for incomes above $95,000 for single taxpayers.

This meetup will cover the key aspects of separating business and personal expenses and keeping track of year-to-date income from self-employment activities so that deductible business expenses can be documented and accurately reported. Unlike w-2 earned income, business owners receiving 1099s need to implement and maintain a record keeping process in order to avoid paying thousands of dollars in unnecessary taxes.

Holding off on a corporate election saves thousands of dollars of professional fees and many hours of payroll set-up and compliance reporting obligations that do not apply to Schedule C taxpayers. The self-employment tax savings achieved via a corporate election often outweigh the additional professional fees and payroll compliance obligations for business owners that expect taxable income to consistently exceed $50,000 (after business expenses).

The IRS requires business owners to file requests for a change in the entity classification (Forms 8832 and 2553) within 75 days of the start of the tax year for which the election is to take effect so it pays to plan ahead.