Statutory W2 Income and 1099 Income from similar and overlapping roles and Self Employment Tax

[Slithy]

I am a life insurance agent and financial advisor, and primarily run both streams of income under one business - holistic financial planning. My life insurance income is through a Statutory Employee (W-2) and my advisory business is paid through a 1099.

- Since many of my business expenses apply equally to either role, do I have full freedom to choose which Schedule C to deduct the expenses from? (To clarify, I'm not referring to expenses clearly applying to life insurance or financial advisory, but rather the ones that could apply either way).

- If I have the full freedom to select which Schedule C to deduct from, would it be more advantageous and appropriate for me to deduct these expenses from my 1099? Would this then reduce my self-employment tax obligation?

- Are there any other implications here I am not considering?

Thank you!

[Bsch4477]

Yes, it would be advantageous to deduct the common expenses from  your 1099 income but the IRS would argue that if the expense applies to both businesses you should divide the expense between them. 

[Rick19744]

As a statutory employee I assume that your W-2 has the appropriate box checked.

If that is the case, then you will report this W-2 income along with the appropriate expenses on a Schedule C.

As a result, you will have two Schedule C's; one for the life insurance and one for the advisory services.

My recommendation is to allocate the expenses based on your best estimate to the appropriate Schedule C.

For those expenses that you indicate could go either way, you need to come up with a defensible (reasonable) position as to how you are allocating them; time spent in each role, etc.