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If I am going to be a contractor instead of an employee is…

If I am going to...
If I am going to be a contractor instead of an employee is there a way to incorporate of something to pay less tax?
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3/13/2018
legalg
legalg, Attorney
Category: Business Law
Satisfied Customers: 12,569
Experience: General Practitioner. Research Attorney
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Hello! I will be reviewing your question and posting a response momentarily; if you have any follow up questions please respond here. Thanks!

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Are you referencing federal or state tax?

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Customer reply replied 1 month ago
Federal. Doesn't a business get a 20% deduction? So if I am 1099'd is there a way to set myself up so I pay less taxes?

It depends on how the business is formed.

A 1099 individual must pay federal and state taxes as well not to mention self employment taxes which are approximately 15%.

Please see:

https://www.irs.gov/faqs/interest-dividends-other-types-of-income/1099-misc-independent-contractors-and-self-employed/1099-misc-independent-contractors-and-self-employed-1

In contrast an LLC is a pass through entity so that there is no double taxation and it has the benefit of providing personal liability as well.

S corporations provide liability protection as well and they avoid the self employment tax; dividends (versus income) also can provide a tax benefit to the owner.

Here is a list of state corporate tax rates:

https://taxfoundation.org/state-corporate-income-tax-rates-brackets-2018/

The Tax Cut and Jobs Act reduced corporate taxes to 21%.

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Customer reply replied 1 month ago
The 21% does not apply to an llc correct? So if a contractor was a regular llc there would be no tax benefits compared to not being an llc?

That does apply to the LLC as well as that is a pass through entity.

being a 1099 contractor generally results in the highest taxes because of the self employment tax issue.

Good article here:

http://smallbusiness.chron.com/advantages-1099-vs-sole-proprietorship-21205.html

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