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Should i go W2 or 1099 for my new position? Is S-Corp going to be the best option for highest tax deduction?

I have a meeting this week to discuss salary, and whether id like to go W2 or 1099. FYSA, in regards to tax purposes, rough numbers told to me was if i choose to go W2, salary will be 190k - 200k, or if i go 1099, 230k - 240k

Ultimately i am seeking advice how to make a good decision. Currently, from my current knowledge on the area, i plan to go 1099 and funnel it through a S-Corp while paying myself a "reasonable salary" and taking as much as i can through dividends for reduced taxes.

Does anyone have advice, recommendation, or expereince they would like to share with me? And tips on what this willl allow me to deduct or resources you recommend me to read?

Here is a summary of the details i am unstanding thus far.

W2

Benefits
• Employer education assist, 5k annual
• Employer paid health insurance

• Dental insurance

• 401k match
• Paid PTO

Disadvantages
• Lower salary (is it still after taking into account insurances?)
• Cannot deduct nearly as much

1099 (Seeking to go S-Corp, but would like other opinions of better options)

Benefits
• Higher salary (is it still after taking into account insurances?)
• Many more tax deducations and write offs, allows me to bring more home after tax
• Potential to grow by looking for other jobs and hiring, which is a posibility down the future

Disadvantages
• Need to pay for my own insurances ( as required by the hiring company, i can get what i need for under 3k a annually, but i have not weighed in how much health insurance would run me, i assume that would be the bulk of the expense, but assuming the extra 40k from going 1099 would cover that?)
• More overhead and work to take care of (but hopefully turbo tax and quickbooks can make this easy)

1 Best answer

Accepted Solutions
Expert Alumni

Should i go W2 or 1099 for my new position? Is S-Corp going to be the best option for highest tax deduction?

It depends on how you run the numbers.  With the 1099 and then an S-Corp you can potentially by pass paying Social Security and Medicare tax on the amount you are not paying yourself as a reasonable salary which is 15.3% unless you pay yourself $137,700 in salary then the amount drops to 2.9%.

 

Paying your own health insurance as an S-Corp is not deductible on the S-Corp and with the high of income even if you do take Itemized Deductions you will probably not receive a deduction for the health insurance.  Also the amount of expenses you would have as an employee (which are not deductible) versus being an S-Corp where you can deduct them.

 

On the other side you can set up your own retirement plan and possibly put more money into retirement depending on the retirement plan you choose.

 

You have enumerated the advantages and disadvantages well.  There are other factors such as how much freedom you may have as a business owner versus a W-2 employee besides the tax factor.

 

The possibilities for the highest tax deductions would come with the S-Corp, but some of those deductions you would not have as a W-2 employee.  

 

Part of it comes down to if you would like the additional freedom and extra work that comes with being a business owner.

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1 Reply
Expert Alumni

Should i go W2 or 1099 for my new position? Is S-Corp going to be the best option for highest tax deduction?

It depends on how you run the numbers.  With the 1099 and then an S-Corp you can potentially by pass paying Social Security and Medicare tax on the amount you are not paying yourself as a reasonable salary which is 15.3% unless you pay yourself $137,700 in salary then the amount drops to 2.9%.

 

Paying your own health insurance as an S-Corp is not deductible on the S-Corp and with the high of income even if you do take Itemized Deductions you will probably not receive a deduction for the health insurance.  Also the amount of expenses you would have as an employee (which are not deductible) versus being an S-Corp where you can deduct them.

 

On the other side you can set up your own retirement plan and possibly put more money into retirement depending on the retirement plan you choose.

 

You have enumerated the advantages and disadvantages well.  There are other factors such as how much freedom you may have as a business owner versus a W-2 employee besides the tax factor.

 

The possibilities for the highest tax deductions would come with the S-Corp, but some of those deductions you would not have as a W-2 employee.  

 

Part of it comes down to if you would like the additional freedom and extra work that comes with being a business owner.

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

View solution in original post

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