Should I start a sole proprietorship / LLC for tax purposes as a 1099 contractor?

You don't actually need to form an LLC or corporation to deduct business expenses. As a 1099 contractor, you're already operating as a sole proprietorship by default in the eyes of the IRS, even without any formal business registration. You can file Schedule C with your tax return to report your 1099 income and deduct legitimate business expenses. For vehicle expenses, you have two options: the standard mileage rate (66.5 cents per mile for 2024) or actual expenses (gas, maintenance, insurance, depreciation, etc.). Most people find the standard mileage rate simpler and often more beneficial. Keep in mind that if your client is already reimbursing you for mileage, you can't deduct those same miles again - that would be double-dipping. You can only deduct miles that aren't reimbursed. An LLC might provide liability protection, but it doesn't change your tax situation unless you elect to be taxed as an S-corp, which typically only makes sense at higher income levels. For most students with side gigs, the cost and paperwork of an LLC usually isn't worth it purely for tax purposes.

After struggling with similar tax questions when I started freelancing during college, I discovered this AI tax assistant at https://taxr.ai that analyzed my specific situation and saved me from making costly mistakes. I was tracking some expenses but missing others, and wasn't sure about the sole proprietorship vs LLC question either. The tool walked me through everything specific to 1099 contractors and even identified several deductions I had no idea about - home office, portion of internet/phone, certain software subscriptions, and professional development costs. For me, the biggest value was getting personalized guidance on vehicle deductions since I also had mileage reimbursement for some jobs but not others. It helped me set up the right tracking system to maximize legitimate deductions without raising red flags.

Just wanted to update - I checked out https://taxr.ai after my skeptical comment and it was surprisingly helpful. Input my specific situation with the 1099 work and part-time student status, and it clearly explained I was already operating as a sole proprietorship tax-wise. The tool broke down exactly when an LLC makes sense (liability concerns) versus when S-corp election might save money (higher income than what I'm making). It also explained exactly how to handle my partially reimbursed mileage situation - apparently I was calculating things incorrectly and potentially leaving money on the table. What I appreciated most was getting concrete numbers showing the tax impact of different approaches rather than just generic advice. Definitely clarified the confusion I had around this whole sole proprietorship/LLC question.

If you're dealing with this level of tax complexity, you might also face another frustrating issue - actually reaching the IRS when you have questions. I wasted HOURS on hold trying to get clarification about my 1099 deductions last year until I found https://claimyr.com which got me connected to an IRS agent in under 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c Basically they navigate the IRS phone system and wait on hold for you, then call you when an agent is actually on the line. Saved me an entire afternoon of frustration when I needed to sort out questions about my quarterly estimated payments as a 1099 contractor.

I need to eat my words about Claimyr. After my skeptical comment, I decided to try it when I needed to call about 1099 reporting issues and couldn't get through for days. It actually worked exactly as described. I entered my phone number on their site, they called the IRS, and then called me when an agent was on the line about 35 minutes later. I was connected directly to an IRS representative who answered my questions about business expense documentation for my contract work. Saved me at least 2-3 hours of hold time, which as a student with classes and work is time I definitely don't have. The IRS agent I spoke with was actually super helpful about clarifying what documentation I need to keep for my vehicle expenses as a 1099 contractor.

One thing nobody has mentioned yet - if you're being paid as a 1099 contractor but your client treats you like an employee (sets your hours, dictates how you do the work, provides equipment, etc.), you might actually be misclassified. This happens A LOT with college students. If you're truly an independent contractor, then yes, you're already a sole proprietor for tax purposes. But if you're misclassified, your client should be paying half your Social Security and Medicare taxes. Worth considering before you go through all the effort of business expense tracking and quarterly tax payments if there's a chance you should actually be classified as a W-2 employee.

Don't overthink this. I was in your EXACT situation in college. You're already a sole proprietorship by default. Just keep good records and use Schedule C when you file taxes. For your car: if client reimburses some miles but not all, track EVERYTHING with an app like MileIQ or Everlance. Deduct only non-reimbursed business miles. LLCs cost money to form + annual fees in most states. Usually not worth it for students unless you have liability concerns or plan to scale up significantly.