I am leaving my job (W2) and becoming a consultant. I was told that going 1099 in the middle of the year might be more expensive in taxes than staying on W2. True?

[VolvoGirl]

Yes in some ways.  You have to pay both the employer and employee parts of SS and Medicare.  Self Employment tax (Scheduled SE) is automatically generated if a person has $400 or more of net profit from self-employment.  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.  You do get to take off the 50% ER portion of the SE tax as an adjustment on 1040 Schedule 1 line 27.   The SE tax is already included in your tax due or reduced your refund.  It is on the 1040 Schedule 4 line 57 which goes to 1040 line 14.  The SE tax is in addition to your regular income tax on the net profit.

But then you can deduct your expenses.  Some general info.  You will need to keep good records.  You may get a 1099Misc 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

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

[Anonymous]

alos as self employed any health insurance you paid goes to reduce agjusted gross income not to itemized deductions which may be less than the standard deduction.  you also have the ability to contribute a large amount to  retirement plans.

some plans must be set up before year end others can be set up as late as the extended due date (do not wait until the last minute, holdups which happen often  could result in the plans not being in effect until the following year which means no contributions for current year are allowed.

then for certain taxpayers there is the Qualified business income deduction which can be as much as 20% of net business income