Engineering and fabrication
Is anyone familiar with being a contract employee in the Motorsports industry?
I have been offered a position with a racing team as a fabricator. I have always worked as a W-2 employee in the past. Are there anythings I need to be aware of before I accept the job? I'll be a 1099 employee and expected to pay my own tax liability. Are there additional deductions I can take in this position? Thanks.
Public Comments
- There are a great number of things that you need to be aware of and keep proper records to maximize the deductions available as a independent contractor. You should seek the help of a tax professional familiar with your industry. Do so ASAP so that you start keeping the necessary records from day one. They will make you a great deal more than their fees are going to cost you.
- You will be like any other contract employee and treated as your own business.
At a minimum you will need to make estimated tax payments based on your total "profit" for regular income taxes and self-employment taxes. You should set aside at least 30% of your gross earnings for this.
To get a better idea of how much in Income Tax to set aside, please read and review IRS Publication 15. I'm assuming that you will be "working" in other states as well. Therefore, you will need to withhold state income tax for each state that you work. Also, you will need to set aside 15% of your gross pay for Self-Employment taxes, this is included in the 30% that I quoted earlier.
To get a good idea of your "deductions," you should read IRS Publication 334 and the instructions for Schedule C and Schedule SE.
Hopefully, your new employer will have someone that can help you with this if this a team with a major sponsorship.
- It is up to you to determine if you currently are or actually were an "employee".
NEXT, DETERMINE IF YOU WILL HAVE A TAX LIABILITY for what you are now planning on doing.
Start here:
How much tax law have you read?
The laws are not as impossible to understand as you may think.
Inform yourself- read the tax law. It's all available online, and searchable.
Pay particular attention to definitions of "wages", "employee" and "employer" http://www.law.cornell.edu/uscode
These are legally-defined terms and have nothing to do with the common language words they resemble. look to items
26 usc 3401 a,c,d in the definitions.
Chances are that your pay was not as a result of "employment" as defined in the Internal Revenue Code (IRC).
If not, then it was not "income".
If you don't feel that your pay fits this category of federal employment, then read Pete Hendrickson's Cracking the Code.
Every minute of reading will save you money!
- In addition to ordinary income tax, you will be subject to a self-employment tax of 15.3% of 0.9235 of what you make (after deductions for work expenses). When you compute your regular income tax, you can deduct 1/2 of the self-employment tax on Form 1040.
Your deductions for work expenses are claimed on Schedule C or C-EZ and not on Schedule A.
If you wish to do so, you can establish a retirement plan and deduct the contributions on Form 1040.
The income from this work will not count towards your eligibility for future unemployment benefits. However, you are not eligible to collect unemployment benefits for any day when you are engaged in this work.
