I am an entry level s/w developer with almost 2 years experience, currently working as w2 employee through a consulting firm (no benefits and other perks) for a 3rd party client. All my co-workers (contractors, 10+ yr expereince) are all 1099 except me. They suggest I start one too for tax savings. I been working for this firm for an year now, thinking about switching to an LLC/S Corp. I know I am a newbie to be independent contractor, but its just for tax savings. My wife is FTE and has family insurance, so that problem solved. Should I switch to 1099 and take tax advantage or wait couple more years (become mid level developer) and start one? Also I am moving out of state in 2 years, so will be leaving this job in 2 years regardless. Just want to make sure I am not taking extra risk by changing my status.
closed as too localized by jcmeloni, gnat, scaaahu, Paul Brown, squeemish Feb 5 at 12:30
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You do understand that the moment you switch to a 1099 your take home pay goes down by ~7%?
It might be possible to take more employee expenses if you are filing as a sole proprietor, but it's unlikly you have enough expenses to make up for having to pay both sides of social security, unemployment, etc.
The IRS considers an LLC to be a 'disregarded entity'. A single member LLC owner gains or loses nothing in taxes compared to just being a self-employed contractor. He gain little or nothing in legal advantages. He does have to pay to file his LLC and comply with his state and local laws.
On this issue don't take advice from your co-workers, any website, or me. Go find an experienced Enrolled Agent or CPA to review your personal situation before you make any changes in your status.
Edited to add: When you go to 1099 status you lose unemployment insurance.