Proper bank accounts for 1099 employee (insurance, refund, expenses, status)
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Thanks everybody for the information. I'll share what I have learned then recommend she contact a CPA.
The bolded sounds like what she was trying to describe to me, that she is paying taxes on the whole amount, but she thought it was because of banking limitations due to age.
Weird.
Nothing to do with banking.
Her 1099 should be for the amount of money she receives, not some other figure.
If $10,000 of software is sold and she gets $5,000, her 1099 should be for $5,000.
From that $5,0000 she can deduct professional fees such as a CPA, any costs directly associated with the production of that software (internet utility, computer, software needed to write software) etc. Talk to an accountant, if things are used for both business and personal use it gets tricky, and done things must be depreciated over a few years.
Then she pays taxes on $5000 less expenses.
If she receives a 1099 for the full $10,000, she needs to contact the issuing company and request a revised 1099.
Terrible advice, 1099 workers normally have to pay self employment taxes, so they need all the available deductions ( which are many) to lower the taxable income.
Her age does not matter on the tax return, she needs to maximize her deductions. Find a CPa that specializes in small business.
That wasn't advice, I was wondering if she just plugged her 1099 into turbo tax and didn't take deductions yet.
I'm trying to figure out why a 17 year old is saying "she gets killed on taxes" - this is probably her first time filing taxes so how would she even know.
How long has she been doing this? Did she file taxes last year too? Seems like she would just be getting ready to file her first tax return, wondering if she just put the totals in a turbotax type program without doing the deductions.
I will recommend the CPA and she how much help she needs from there to make that happen.
My angle is academic advising/student support, so her finances came up because she feels she may need to take an additional job, which would cut into school time. Obviously getting more of the money she already makes in her pocket, if possible, is the better solution for her.
I've done work as a 1099 consultant. If she's "getting killed on taxes" her rate is probably too low. A commonly used rule of thumb for 1099's is to charge triple the going hourly rate for the type of work being done. If a technical software person (not a manager or lead) would normally get $30/hour if hired as a full-time employee, then a 1099 should invoice at $90 per billable hour plus expenses.
That's what I did the last time I did 1099 work. I used salary.com and Indeed to get an idea of what the going rate is for full-time employees for the type of work I was doing. I tripled that rate, submitted that as part of my proposal. The firm that hired me didn't bat an eye at my rate, they were more focused on the work product and how fast I could deliver.
To me, the worst part about being a 1099 was paying both halves of the soc sec. I did my own business taxes for 40 years. Not really hard unless you have to file estimated taxes.
I'm not sure how much having a business bank account would change her tax situation, afaik it shouldn't change too much but I'm not a CPA. There's some online business banks that are fairly easy to get setup such as nearside and don't have too much fees so that could be a good option.
If this person is self-employed then the earnings from the 1099 pass-through to them. No special bank account is necessary. I use IRS free-file products to do my taxes each year. The products have it all figured out, and make my life as a sole proprietor easy. When I worked for a huge manufacturer as a 1099 I had to create a business for the money to pass to as they didn't pay individuals.
You can't have a business bank account without having a business entity (LLC, Corp). Setting up a business entity comes with more expenses such as corporation filings and taxes. Business bank account gives you no tax benefits.
You can only be 1099'ed on payments received.
She says she's being killed on taxes because she's young and hasn't paid taxes before, LOL.
Sit with a CPA and learn the ropes in order to minimize your tax burden. On the surface, can't imagine that a seventeen-year-old working part time, unless they have some sort of "genius" product, would have any tax burden whatsoever after throwing ALL expenses into the equation.
But, we don't know the details....
I would also add that when using one of the pre-packaged tax prep programs, like TurboTax, it can be tricky to get the revenue and the expenses organized. They just don't do a good job of this type of 1099 situation.
Sit with a CPA and learn the ropes in order to minimize your tax burden. On the surface, can't imagine that a seventeen-year-old working part time, unless they have some sort of "genius" product, would have any tax burden whatsoever after throwing ALL expenses into the equation.
But, we don't know the details....
I would also add that when using one of the pre-packaged tax prep programs, like TurboTax, it can be tricky to get the revenue and the expenses organized. They just don't do a good job of this type of 1099 situation.
That’s a pretty lousy business model.
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