Everyone has questions about the sweeping tax reform that became law at the end of last year. As a coach and champion for independent consultants, I went on a fact-finding mission to answer two important questions:
- Are self-employed consultants still better off being paid on a 1099 tax basis as a business or on a W-2 tax basis through a third party?
- Is there a tax advantage to how independent consultants structure their businesses — as a sole proprietor, LLC, S corp or C corp?
Here’s what I learned after too many hours of research and talking with two CPAs and a lawyer. (Disclaimer: I am neither an accountant nor a tax lawyer, so I’m not qualified to give tax or legal advice. I’m simply trying to help self-employed consultants understand how the changes in tax law may affect them, so they — you — can have a more productive conversation with your tax professional.)
A. The answer to my first question is yes. It’s still better to be paid on a 1099 tax basis because you can still take business-owner tax deductions, possibly in addition to the new 20% deduction (more on that below), and you can still take advantage of better retirement options like a SEP-IRA to lower your taxable income. (See “Friends Don’t Let Friends W-2”TM for more information.)Read More