1099 Contractor vs. LLC

[KearsargeCoop]

Everyone here is an expert so I figured why not ask the crew so here it is -

My wife manages a 3 unit short term rental for a friend. He 1099's her, and myself as well as I do some general maintenance for him from time to time. My question is, would it be more advantageous for us to start an LLC or just remain contractors? We're talking under 15k a year total between both os us as of now.

Thoughts?

 

[DriverNerd]

You are only making 15k from one person a year... do you feel the need to protect yourself and your property from this person? I don't really see the advantage of going LLC unless you're going to have more employers, want to protect yourself from potential liabilities, and are making more money. Taxes must be super easy for you now with two 1099's and that low income.

FYI I'm no financial expert.

 

[IVE GOTTA PACKAGE 4U]

Doesn't seem worth to even do the job especially since you got to pay double social security and double Medicare tax on those earnings

 

[KearsargeCoop]

Doesn't seem worth to even do the job especially since you got to pay double social security and double Medicare tax on those earnings

Those are good points. This is the first year we are doing it, so I was thinking of how to go into 2024.
I'll look more into this.

You are only making 15k from one person a year... do you feel the need to protect yourself and your property from this person? I don't really see the advantage of going LLC unless you're going to have more employers, want to protect yourself from potential liabilities, and are making more money. Taxes must be super easy for you now with two 1099's and that low income.

FYI I'm no financial expert.

I was more thinking of funneling expenses through the LLC. Car maintenance, cell phone, internet. All those things we use for the act of "work".
Might not be worth it, but just doing my due diligence

 

[IVE GOTTA PACKAGE 4U]

Those are good points. This is the first year we are doing it, so I was thinking of how to go into 2024.
I'll look more into this.

I was more thinking of funneling expenses through the LLC. Car maintenance, cell phone, internet. All those things we use for the act of "work".
Might not be worth it, but just doing my due diligence

You will have to pay 15.30% for social security and Medicare.
Plus state , federal and local taxes

 

[KearsargeCoop]

You will have to pay 15.30% for social security and Medicare.
Plus state , federal and local taxes

I ended up putting aside 30 percent for those purposes. If there's any left over we will dump into IRA

 

[IVE GOTTA PACKAGE 4U]

I ended up putting aside 30 percent for those purposes. If there's any left over we will dump into IRA

I'm not sure what the rules are when you have to pay them but you don't want to screw up because they will penalize the hell out of you.

 

[Red Headed Stranger]

Several items that might help you....1) "Ideally," this friend should be paying you both as employees unless you are in this line of work already. If you only do this type of work for this "friend," you really aren't an independent contractor....but nevertheless you can receive the 1099 and each file a Schedule C (one for you and one for your wife) with the gross earnings listed from the 1099's. You both will pay the employee and the employer share of Medicare taxes (1.45% employee share + 1.45% employer share), the employee and employer share of Social Security (6.2% employee share on up to $160,200 worth of income (2023) + 6.2% on the employer share.) You will be able to make a deduction on Schedule 1 of the 1040 form for 1/2 of the self-employment tax. You will also be responsible for the federal and state taxes on your net income. 2) Don't forget to deduct for home office, mileage, liability insurance, office supplies, etc.; 3) You may be able to use part of your net income to contribute to a SEP IRA (20% of net self-employment income after the deduction for one-half of SE tax.) Forming a LLC is beneficial to avoid personal liability, but if you and your wife form an LLC together, you may need to file a partnership return (1065) in addition to your regular income tax (1040) return and that adds up to more $$ spent annually for tax preparation (depends on whether you are in a community-property state.)

 

[Commercial Inside Release]

You want to talk to @Up In Smoke ...
The LLC avenue has significant opportunities to exploit, even if you have to pay quarterly estimated taxes, and bother with the voodoo of pretending to be a corporation.

From where I'm sitting, the LLC has a even bigger opportunity... If they do the PPP handouts again, and I'm sure they will (COVID is too profitable for investment firms,) you can rip off the tax payers for $100s of thousands. Tons of people that missed out, now are starting LLCs.