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Flyer
Level 2

First-time consultant paid via 1099- need some advice

Hi all, I recently got laid off for the first time and was recently offered a 6-month gig that will be paid via 1099.  All I have done is open a business bank account after creating a LLC (Sole Proprietor).   I need to figure out  what type of software to use, and I also would appreciate some general advice.

 

Let's say I get paid $10,000 per month for six months via 1099.  So $10,000 will be my monthly revenue.  Which version of the software should I get?  I am the only employe and besides the usual expenses, I will probably have to track mileage too.  My wife is W2 salaried.  Could I still file taxes jointly?  I still probably don't know what questions to ask but this is a good start for me.  With a dedicated bank account and a LLC, I will keep business income and expenses separate and hopefully take advantage of all the deductions I can get.

 

Thanks for the help and advice!!

53 Comments
Rustler
Level 15

First-time consultant paid via 1099- need some advice

As a sole proprietor you are not an employee.

 

What you are paid monthly is your income, and you log your expenses as they occur. The 1099 is just a reporting form that you and the IRS gets. You will file taxes using schedule C with the IRS, basically moving your P&L to the form. I would suggest you download it from the IRS and set up you chart of accounts to match the blocks on the form, you can use sub accounts if you want to track details of that account.

 

As a sole proprietor you will need to download IRS form 1040-ES and do quarterly estimated taxes, there is a worksheet in the instruction for calculating how much.

 

I would suggest desktop pro, but QBO essentials will also do the job at a higher cost. a non partisan comparison of QBO vs QB desktop
http://onsale-apparel.com/Rustler/qbo-or-qbdt
(cost comparisons are at the end of the article)

 

I would stay away from QBSE as it is extremely limited and not complete per the schedule C at all.

 

Yes, the schedule C is just one more form as part of your form 1040 when you file, filing status can stay the same.

 

 

 

Flyer
Level 2

First-time consultant paid via 1099- need some advice

Rustler- thanks so much!  I appreciate all this information and will look into the things you mention.  I'll also look at the desktop Pro.  Very helpful info indeed.  Cheers

Rustler
Level 15

First-time consultant paid via 1099- need some advice

You're Welcome

EmilyCowan
Level 7

First-time consultant paid via 1099- need some advice

Hey @Flyer - a very warm welcome to QB Community! First of all, I'm sorry to hear about your recent layoff and congratulations for landing on your feet. You've found the right place to connect with and learn from other self-employed folks who've "been there, done that."

 

Sounds like you're in much the same boat as new QB Community member @DJayne, who posted last week about receiving her first 1099. She got some great advice from @lynda and @Peter_G_Stone on setting up her finances for self-employment (although it sounds like you're ahead of the game on that with your new LLC!). 

 

What type of consulting do you do?

Flyer
Level 2

First-time consultant paid via 1099- need some advice

Emily, thanks for the warm welcome and the kind words.  A huge Silicon Valley bought our small 18-year-old extremely profitable company and proceeded to shut us down completely, soon after regular meetings on how to grow the business more.  So it was a real shock and took me a while to process it, and to start sleeping better.  Now I at least have a 6-month buffer and who knows...it may turn into a perm thing.  The information here will help me maximize my income, while keeping everything well organized.  I'll take a look at the posts you mention.

 

I'm going to be doing mostly project management and client management for the company that actually won the business that we were forced to give up when our parent company shut us down.  So I'll manage the client relationships, escalations, and the overall integration work to make sure we hit the mandatory deadlines.  

EmilyCowan
Level 7

First-time consultant paid via 1099- need some advice

@Flyer wow, it must have been tough to watch everything you'd worked so hard to build up suddenly shut down like that. I guess that's the best (and also potentially the most daunting) aspect of working for yourself: complete and total self-determination.

 

It does sound like you've GOT this, though. Who knows? Maybe you'll prefer self-employment in the long run :smileyhappy:

 

If you haven't yet, I highly recommend joining our Momentum to $1 Million discussion group hosted by rockstar business coach Julie Gordon White (@Anonymous). Live "office hours" every Wednesday and new motivational posts every day of the week - just click the green Join button at the top of the page and you're in!

Flyer
Level 2

First-time consultant paid via 1099- need some advice

Yeah, it was mentally very difficult.  We were the top partner for our clients and they were as shocked.  I also lost a lot of stock options and grants...more than I care to think about, so it was made worse.   It probably took me 4-6 weeks to get over the initial shock.  

 

It is possible that I will prefer self-employment but it could be a difficult prospect in my line of work, since I am not really technical.  I have a final interview with a large consulting firm for a Director-level position, but with 100% travel, that is not too appealing (even though the pay and benefits are).  I'll go through it anyway but I would find it difficult to back out of this other gig since I told them I'd help them out for six months at least.  They are letting me work from home, travel some,  and not relocate (yet).    

 

Thanks for the suggestion on the discussion group.  I'll join it.

EmilyCowan
Level 7

First-time consultant paid via 1099- need some advice

Work-life balance is huge. But you're right, there's nothing to be lost by moving forward with the interview process even if this job opportunity isn't quite right in terms of lifestyle or timing. Good luck! You never know who you might meet :smileyhappy:

 

Please keep us updated (on your choice of software and everything else), and see you in Julie's group!

Peter_G_Stone
Level 3

First-time consultant paid via 1099- need some advice

@Flyer I'm sorry about your situation, it sounds very difficult, but I congratulate you on landing on your feet so quickly! You asked some great questions. From a tax standpoint, your filing status does not need to change. In fact, your wife's withholdings will help offset that pesky SE tax you will now be facing as a sole proprietor. Obviously, you will want to speak with a tax expert with more specifics, to create the best tax planning strategy you can moving forward. As @Rustler said, quarterly estimated tax payments are a must! If you don't pay them you will have interest and penalties come April, but more importantly it is easier and less painful to break up your tax liability throughout the year!

Regarding QB, it is a personal preference. I would suggest QBO Essentials. You can integrate a mileage tracker to help you with that area of your business, plus it has plenty of capabilities for what you need. A less expensive option would be QBSE. I don't know much about the breadth of your gig, but SE will track income and expenses, plus mileage. It will provide you with an Income Statement for your Schedule C to help you come tax time. Desktop Pro is a very solid option, but if you do not continue past this 6 month commitment of working for yourself, it will not be a value buy for you. There is more than enough info on the QB website to help you choose. Best of luck!

lynda
Community Champion

First-time consultant paid via 1099- need some advice

Hi @Flyer:

 

I hate to disagree with @Rustler  but I have to this time.  QB Online Self-employed is the perfect program for you to get started with.  It revolves around Schedule C filers.  Is it a robust accounting system?  No.  But it will help you track your income and expenses and let you know how much you need to pay for your estimated taxes as the income starts to be generated.  It has an amazing mileage tracker too. You hook up the bank and credit cards and go!  You can also invoice your customers directly from the program and they can pay you with Intuit Merchant services.  Here is a link.  You can even bundle it with Turbo tax.

 

Lynda

lynda
Community Champion

First-time consultant paid via 1099- need some advice

I also second @EmilyCowan's suggestion of  @Anonymous's page Momentum to $1 million.  She will give you such wonderful tips on work/life balance.

 

Also, you can always post here.  We have an amazing group of people who want to help.  Many of us started our own businesses and can provide advise and you can learn from our successes and missteps.  :cathappy:

Rustler
Level 15

First-time consultant paid via 1099- need some advice

@lynda

 

{smile}

 

Here is the issues I have with QBSE, I do agree it revolves around the schedule C, spinning down the drain so to speak {humor}

 

QBSE does not follow the schedule C in its entirety

QBSE does not allow for any new accounts (categories) to be created
QBSE does not have a balance sheet so you can not enter the cost or the depreciation for a car/equipment, nor can you enter and maintain a bank balance
QBSE does not do inventory or cost of goods sold
QBSE does not do any associated IRS forms, like home office deductions or depreciation

 

QBSE does not do sales tax either (not schedule C related but critical to a business)

Flyer
Level 2

First-time consultant paid via 1099- need some advice

Peter & Lynda- thanks so much for your feedback.  

 

Some details about my 6-month contract:

 

I will basically be managing a large project (from home in Denver + some travel to Atlanta where my employer and the clients are) so I will have expenses like home-office expenses, mileage,  some meals, etc.  I still need to figure out what expenses qualify.  However, there will been no sales tax or inventory (that I can think of).  I did recently buy a new vehicle under personal, but I don't think that  can be used for depreciation though mileage can be.  I'll run home phone and mobile expenses (both used for business) but really don't have equipment for depreciation (laptop provided by employer).  At the end of the 6 months, they will MAYBE hire me permanently but that is a 50-50 shot.  If I relocate to Atlanta, it will be a 90% likelihood but if not, I thin it is 50%, depending on how valuable they find me. 

 

I'm still reeling for the massive (and depressing) loss of converted and granted stock options I lost...that was going to fund my retirement so I'm now trying to maximize my deductions and reduce expenses.  I think it was over 500K worth.  While I cannot recover from that, I am trying to not let it affect my normally-cheerful outlook.  

 

Given all these contract-related details, does any recommendation change?

 

lynda
Community Champion

First-time consultant paid via 1099- need some advice

@Flyer: I still believe you are a great candidate for QB Self-Employed.  

 

With QB Self-Employed you can hook up your business bank and credit cards, categorize your transactions, attach your receipts, track your mileage, do simple invoicing (yes, you can track sales tax, but unfortunately at this time it is a manual process), receive your tax estimates, and export your data to excel for a detailed transaction listing of what is in each Schedule C category.  

 

If you need to add apps for your business, then you would be best to go to QB Online, maybe simple start program, which is a more robust business accounting system.  I think of QBSE as a great product when you are just starting out.  Consulting businesses are definitely a business that would work in QB SE.  Home office expenses can be calculated using a split transaction based on the size of your home and dedicated office space. 

 

@EmilyCowan had a great article about what expenses are deductible for schedule c so you know exactly what is and isn't deductible.

Flyer
Level 2

First-time consultant paid via 1099- need some advice

Thanks so much, lynda!!!!  I'll take a look at the article you linked.

lynda
Community Champion

First-time consultant paid via 1099- need some advice

@Rustler:

 

I think you are looking at this product from an accountant's perspective.  You need to look at it from the perspective of the user that it was intended for.  It is not a program for someone who has inventory.  That is correct.  If they have that, they need QBO Plus or QBO Essentials with an app for inventory. 

 

The reason it does not let you add accounts is it is fixed to the schedule C categories.  I wish this program was around when I first started my business.  It would have been exactly what I needed.  Then as my business grew, I would have outgrown it when I converted to an LLC (my old firm) that acted as an S-Corp.  

 

It is also not designed for someone who has big assets that need to be depreciated.   

 

I am hoping the sales tax piece does come in to play in the future, as for sure, that is lacking.  It can be manually tracked, but that makes the job a bit more cumbersome and I would recommend a move to QBO product.

 

But the market for this program is the start ups.   A market that is growing leaps and bounds.  I love that someone in this program can track their estimated taxes and mileage with ease!  And to it is bundled with tax software for those who are starting who do not have the budget the CPA and have very simple tax needs.

 

Still love you, @rustler as it is always fun to agree to disagree.  :catwink:

Peter_G_Stone
Level 3

First-time consultant paid via 1099- need some advice

@Flyer, my recommendation does not change. You need to explore the various QB options to decide which one will be most valuable to YOU. I recommend QBO because that is what I use the most and steer new clients towards. I believe that the subscription costs (deductible business expense) are more than worth it and you can cancel at any time. Once you buy QBDT you are locked in. So if you do get employment from this company at the end of 6 months you surely will not get your value out of the QBDT purchase. To me it sounds like you will have no need for anything more robust than QBO Essentials, but I think you can use QBSE and it will provide everything you need. A couple notes on your business deductions.

  • You will need a dedicated business line in your home if you want to take a deduction & the same can be said for cell phone usage. I'm not saying you can't deduct them otherwise, but if you were ever audited that is a no-no and you will be penalized.
  • Choose wisely for your auto deduction. If you pick the Actual Expense method, you must continue to use that method in subsequent years. However, if you use the Standard mileage rate you can switch methods in subsequent years. I'm not suggesting one or the other, just food for thought

At the end of the day, any good tax software is going to easily calculate home office deductions and auto deductions for you, but if you do not understand the underlying principles and tax law the software will allow you to make errant choices. Also, remember to SAVE EVERYTHING! After you enter your expenses into Quickbooks save your receipts or other documentation. A set of QB financials is not sufficient evidence for the IRS if they come calling. Best of luck to you in your pursuits!

EmilyCowan
Level 7

First-time consultant paid via 1099- need some advice

LOL, @Flyer, I think you're getting a sense of how awesomely knowledgeable and genuinely helpful our QB Community members can be - even if we sometimes disagree with each other! What's your sense of the experience so far? Are you finding what you were hoping to find here in terms of guidance and support?

Anonymous
Not applicable

First-time consultant paid via 1099- need some advice

This entire conversation is AMAZING! What an incredible community!! #momentumto1million!! 

Rustler
Level 15

First-time consultant paid via 1099- need some advice

@lynda

 

Schedule C allows for any number of expense accounts, those accounts are summarized/listed in part V, and totaled on line 27a

 

It is also not designed for someone who has big assets that need to be depreciated
why not? A self employed service tech can not own a car for business only?  AND part IV of the schedule C refers the individual to the instruction to see if they are required to file depreciation  - ERGO - the IRS accepts the concept that a sole proprietor could need that aspect.

 

Last time I looked the estimated tax routine in QBSE was wrong, do it on paper, do it in QBSE and there are two different numbers to choose from.

 

You skipped COGS - I guess a service tech would never carry common items he needs to replace, or ... someone selling scarves, or hoogalators, or ...

 

And what about business banking? A start up does not need to know what is in the bank? 

 

and my favorite pet peeve about all this PC junk, and intuit making up concepts that y'all (the empirical y'all) continue to reinforce.  There is no such thing as being self employed as something separate from a sole proprietor or partner.

 

BOTH the sole proprietor and the partner are self employed.

Flyer
Level 2

First-time consultant paid via 1099- need some advice

This community's input is very helpful.  I did not realize that a home phone and cell phone should be in the business's name, ideally.  In fact, there is a lot for me to learn, if I want to avoid some serious problems with the tax man.  The cautions are as valuable as the great suggestions.  

 

I could not wait for too many days so I signed a short Letter Agreement with the company that offered me the 6-month gig.  I am still moving forward with the Big Four consulting firm interview tomorrow.  The 100% travel is extremely daunting but I'll see how I feel tomorrow...or once they make me an offer, if they do.  Obviously, it will be amazing on the resume for this 49-year-old IF I can digest that sort of travel.  The pay there will be good too, for a director-level position  Downtown office (which sucks) but I think when not traveling Sun-Thu or Mon-Thu, most work from home on most Fridays.  I need to get up by 5:30am and out by 7.  Yikes!

 

 

 

 

 

 

EmilyCowan
Level 7

First-time consultant paid via 1099- need some advice

Good luck with the interview tomorrow, @Flyer! Whatever you decide!

 

(What's "downtown" for you?)

Flyer
Level 2

First-time consultant paid via 1099- need some advice

Thanks Emily!  Downtown Denver...45-60mins away from my house, sadly.  Well, traffic is sad.  :)

EmilyCowan
Level 7

First-time consultant paid via 1099- need some advice


@Flyer wrote:

Thanks Emily!  Downtown Denver...45-60mins away from my house, sadly.  Well, traffic is sad.  :)

 

I love how you can see the mountains from pretty much anywhere in Denver. Guess I'm not the only one!

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