Is it too risky to work (and file taxes later on) as both an freelancer/contractor AND employee?!

[Introspective Introvert]

I'm in the process of applying to jobs right now and I established my own single-member LLC/separate business bank account/ EIN number mainly for liability protection and have only been applying to jobs for contractor roles, but lately I've been seeing some job opportunities that I qualify for but is specifically designated for employees My main concern is the potential complications of being both a freelancer/contractor and employee. So if my employer asks for my personal SSN and I work the same time as a part-time freelancer/contractor and file my own taxes under my business EIN, is that going to accelerate the risk of being audited or complicate the process of filing my own taxes later on?

I hope my question makes sense; I'm entirely new to working remotely as a freelancer/contractor so any advice or insight is greatly appreciated. At this point, I'm just grateful to get called back for an interview and get hired. So when I'm on the lookout for jobs, I'm not sure if I should mainly be focusing on contractor jobs or if I can look into job opportunities that are specifically for those who want to work as employees. I took a chance and invested a lot into building the foundation of my small business so I wanted to reach out and make a final decision on how I should navigate job searches. Thank you so much!

[xmasbaby0]

Millions of people work at W-2 jobs and also work as independent contractors or do self-employed work.    There is no reason to fear that that situation would trigger an audit.    And.....you would put ALL of your income on the same tax return form----a single member LLC is a disregarded entity for tax purposes.   You could use either online Self-Employed software or the CD/download for Home and Business.   Either version can easily handle both W-2 income and self-employment income.

If you work as an independent contractor keep good records for yourself so you will be able to enter your business expenses on your Schedule C.

https://ttlc.intuit.com/questions/2903027-how-do-i-report-income-from-self-employment

https://ttlc.intuit.com/questions/2926899-how-does-my-side-job-affect-my-taxes

https://ttlc.intuit.com/community/self-employed/help/what-is-the-self-employment-tax/00/25922

https://ttlc.intuit.com/questions/2902389-why-am-i-paying-self-employment-tax

https://ttlc.intuit.com/questions/1901340-where-do-i-enter-schedule-c

https://ttlc.intuit.com/questions/3398950-what-self-employed-expenses-can-i-deduct

[xmasbaby0]

@VolvoGirl   @Critter-3       How about your words of wisdom for being self-employed for this user?  

[VolvoGirl]

Depends how you set up the Single Member LLC.  As answered above it is a disregarded entity and you file it on your personal tax return as self employment.  UNLESS you selected it to be an S Corp.  Then it files it own separate Business tax return.

Here is some more info on filing it in your tax return if it is not a S corp.  You will need to keep good records.  You may get a 1099NEC at the end of the year if someone pays you more than $600 but you need to report all your income no matter how small.  You might want to use Quicken or QuickBooks to keep track of your income and expenses.

There is also QuickBooks Self Employment bundle you can check out which includes one Turbo Tax Online Self Employed  return....

http://quickbooks.intuit.com/self-employed

When you are self employed you are in business for yourself and the person or company that pays you is your customer or client.

To report your self employment income you will fill out schedule C in your personal 1040 tax return and pay SE self employment Tax.  You will need to use the Online Self Employed version or any Desktop program but the Desktop Home & Business version will have the most help.

Here is some IRS reading material……

IRS information on Self Employment

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center

Pulication 334, Tax Guide for Small Business

http://www.irs.gov/pub/irs-pdf/p334.pdf

Publication 535 Business Expenses

http://www.irs.gov/pub/irs-pdf/p535.pdf

You pay Self Employment tax on $400 or more of net profit from self-employment in addition to any regular income tax.  You pay 15.3% SE tax on 92.35% of your Net Profit greater than $400.  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  

PAYING ESTIMATES

You may need to send in quarterly estimated payments to cover any self employment tax and increase in income.

You must make quarterly estimated tax payments for the current tax year if both of the following apply:

- 1. You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits.

- 2. You expect your withholding and credits to be less than the smaller of:

    90% of the tax to be shown on your current year’s tax return, or

  100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months).

Turbo Tax will calculate the 1040ES estimated payments

https://ttlc.intuit.com/community/tax-payments/help/can-turbotax-calculate-next-year-s-federal-estim...

How to make the Estimated payments

https://ttlc.intuit.com/community/tax-payments/help/how-do-i-make-estimated-tax-payments/00/25875

[Introspective Introvert]

Thank you so much for your help and all of the great resources! This makes me feel a little less anxious, haha! 🙂

[Introspective Introvert]

Wow, this is awesome! Thank you so much for your help and for including additional resources for me to go through! 🙂 Yes, I believe my LLC is a disregarded entity and did not qualify to sort it as an S-corp since my business is not making any profits yet (I'm still applying to get hired by my first client so I have a long way to go lol.) My mentors told me that if it's not ideal to work as a sole proprietor if I want to work as a freelancer for the long haul so I went ahead and invested in establishing my LLC first before actually landing any clients. I'm the first in my family to go through the entrepreneurial route and it has been super overwhelming to say the least. But I'm super grateful for all the kind strangers on here providing me with great insight on how to properly file my own taxes.

[rjs]

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@Introspective Introvert wrote:

if my employer asks for my personal SSN and I work the same time as a part-time freelancer/contractor and file my own taxes under my business EIN

---

You never file your personal tax return under your business EIN. You always use your Social Security number on your tax return. If you have an EIN for the business, the EIN will be shown on Schedule C, in addition to your SSN. The Schedule C is still part of your personal tax return filed under your SSN.

[Mike9241]

it is not risky.  just remember that as an independent contractor to keep good records and recognize that there will be no withholding and on your net IC income you'll owe about another 15% in self-employment taxes.

not paying in or having enough in withholding can result in underpayment penalties.

There will be no federal penalties for not paying in enough taxes during the year if withholding
1) And timely estimated tax payments equal or exceed 90% of your 2021 tax
or
2) And timely estimated tax payments equal or exceed 100% of your 2020 tax (110% if your 2020 adjusted gross income was more than $150K)
or
3) the balance due after subtracting taxes withheld from 90% of your 2021 tax is less than $1,000
or
4) your total taxes are less than $1,000

state laws differ

[Introspective Introvert]

Thank you so much for your insight! I have a spreadsheet ready to go and will invest in bookkeeping software soon so hopefully I'll get a good headstart and will stay on the right track.

[Introspective Introvert]

Thank you for pointing this out to me! It will be the first time I'm filing taxes on my own so this is really helpful to keep in mind.