Should I set up a Sole Proprietorship for my 1099-NEC contractor position?
Title: Should I set up a Sole Proprietorship for my 1099-NEC contractor position? 1 I've been working as a personal assistant for about 2.5 years now and my employer has me classified as an independent contractor with a 1099-NEC instead of being a W2 employee. This is going to be my third tax season dealing with this arrangement and honestly I'm getting tired of the high self-employment taxes. I don't receive any benefits whatsoever - no health insurance, no 401k contributions, nothing. I'm wondering if I should just bite the bullet and formally set up a Sole Proprietorship for this job? My main goals are to reduce my taxable income by properly tracking and deducting all my business expenses, and I'd like to set up a separate business bank account to make tax time less of a nightmare. Right now I'm using my personal checking for everything and it's a mess trying to sort what's business vs personal. Would creating a Sole Proprietorship actually help my tax situation? I live in Washington state if that makes any difference for state regulations. Any advice from people who've done this would be really appreciated!
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KaiEsmeralda
8 You don't actually need to "create" a Sole Proprietorship - you already have one! As a 1099-NEC contractor, you're automatically considered a sole proprietor by the IRS unless you've elected a different business structure. What would help you is exactly what you mentioned - setting up a separate business bank account to keep your income and expenses organized. This is a smart move and will make tax time much easier. You'll file a Schedule C with your personal tax return to report business income and expenses, which allows you to deduct legitimate business expenses to reduce your taxable income. For the self-employment tax burden, consider making quarterly estimated tax payments to avoid a big bill at tax time. Also look into setting up a SEP IRA or Solo 401k, which can help reduce your taxable income while saving for retirement.
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KaiEsmeralda
•15 Wait, so I've technically been operating as a sole proprietorship this whole time without realizing it? Do I need to register my business name with Washington state or can I just continue using my personal name? Also, what kind of business expenses can I typically deduct as a personal assistant?
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KaiEsmeralda
•8 Yes, you're already a sole proprietor for tax purposes! If you're operating under your own name, you don't need to register a business name with Washington state. If you want to use a different name, you would need to file a DBA ("doing business as"). For deductible expenses as a personal assistant, you can typically deduct things like: home office space if you have a dedicated area, supplies and equipment you purchase for work, business portion of your phone/internet, mileage for work-related travel (not commuting), professional development courses, and even a portion of your health insurance premiums. Just make sure to keep detailed records and receipts for everything you deduct.
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KaiEsmeralda
12 I was in a similar position last year and discovered taxr.ai (https://taxr.ai) after getting completely confused about which expenses I could legitimately deduct as a 1099 contractor. It analyzed all my bank statements and automatically categorized which expenses were business-related, even finding deductions I had no idea I could claim! Saved me hours of sorting through statements and probably found an extra $2,300 in deductions I would have missed.
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KaiEsmeralda
•5 Does it connect directly to your bank accounts or do you have to upload statements? I'm concerned about security with these kinds of services.
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KaiEsmeralda
•19 Can it help figure out home office deductions too? I've been working from home part-time but heard mixed things about claiming this deduction.
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KaiEsmeralda
•12 You can either connect your accounts securely or upload statements manually - I chose to upload PDFs since I was a bit cautious at first too. They use bank-level encryption and don't store your login credentials. For home office deductions, absolutely! It guided me through determining what percentage of my home qualifies as a dedicated workspace and calculated both the simplified and regular method so I could choose the one that gave me the bigger deduction. The regular method found me an extra $400 in deductions compared to the simplified option in my case.
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KaiEsmeralda
19 Just wanted to follow up - I tried taxr.ai after seeing this post and wow, it was incredibly helpful! I uploaded my last 6 months of statements and it found over $1,800 in deductible business expenses I hadn't been tracking. The home office calculation tool was super straightforward and showed me exactly what documentation I need to keep. Definitely using this for my quarterly estimates going forward!
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KaiEsmeralda
3 If you're having issues with the IRS about your contractor status or have questions about whether you should be classified as an employee instead, I highly recommend Claimyr (https://claimyr.com). I was stuck in contractor limbo for years before finally calling the IRS to clarify my situation, but couldn't get through after trying for days. Claimyr got me connected with an actual IRS agent in 45 minutes instead of waiting on hold for hours. You can see how it works here: https://youtu.be/_kiP6q8DX5c
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KaiEsmeralda
•7 How exactly does this work? The IRS phone system is notorious for disconnecting people. Do they just keep calling until they get through?
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KaiEsmeralda
•22 Yeah right, there's no way this actually works. I've literally spent DAYS trying to reach someone at the IRS. If this actually worked, everyone would be using it.
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KaiEsmeralda
•3 They use a system that navigates the IRS phone tree and waits on hold for you. When an agent actually picks up, you get a call connecting you directly to them. No more waiting on hold for hours or getting disconnected. As for skepticism, I totally get it - I was exactly the same way. The reason everyone isn't using it is probably because many people don't know about it yet. The peace of mind from actually talking to a real person at the IRS about my contractor classification was absolutely worth it.
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KaiEsmeralda
22 I need to publicly eat my words here. After posting my skeptical comment, I was desperate enough to try Claimyr because I needed clarification about my contractor status. I was connected to an IRS agent in about 35 minutes. The agent confirmed that my employer was likely misclassifying me and directed me to Form SS-8 to request a determination. Just filed it last week. Honestly still shocked this service actually worked exactly as advertised.
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KaiEsmeralda
10 Don't forget about quarterly estimated tax payments if you go the sole proprietorship route! I made that mistake my first year as a 1099 contractor and got hit with nasty underpayment penalties. You'll need to make payments on April 15, June 15, September 15, and January 15 (for the previous year).
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KaiEsmeralda
•15 How do you calculate how much to pay for estimated taxes? Is there some formula or percentage I should be setting aside from each payment I receive?
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KaiEsmeralda
•10 The safe harbor method is to pay either 90% of your current year's tax liability or 100% of last year's tax liability (110% if your income is above $150,000), whichever is lower. For a quick practical approach, I set aside about 30% of all my 1099 income - roughly 15% for self-employment tax and 15% for income tax. This has worked well for me, but your tax bracket might differ. The IRS has Form 1040-ES with a worksheet to calculate more precisely, or you can use tax software that offers quarterly tax calculators.
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KaiEsmeralda
17 Just a heads up about Washington state - while we don't have state income tax (yay!), if your business grosses over $12,000 annually, you'll need to register with the Department of Revenue and pay Business & Occupation (B&O) tax. The rate is pretty low for service businesses though - around 1.5% of gross revenue.
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KaiEsmeralda
•4 Does that apply even if you're just a freelancer/contractor working for one company? I thought B&O tax was just for actual businesses with multiple clients.
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