How will a 1099 work with an existing W-2?

Question

I have searched the site but haven't found (or think I haven't) a clear answer about having a full time job (i.e., receiving a salary, W-2) and having a side job on a 1099.

Here are my questions:

1/ How will I initiate this on the side job? I have an offer from a consulting firm to do 1099 with them for their client. So I sign with the consulting firm some papers, and at the end of the tax year, this consulting firm will send me a 1099 form that would read all the money they have given me? (What about the travel expenses? will these reimbursements appear in my 1099? If yes do I have to pay also taxes for them?)

2/ They told me instead that they can do a W-2. But will this be possible since I already have a full time job?

Thank you very much!

Answer 1

You can do either a 1099 or a W-2. There is no limitations to the number of W-2s one can have in reporting taxes. Problems occur, with the IRS, when one "forgets" to report income. Even if one holds only one job at a time, people typically have more than one W-2 if they change jobs within the year.

The W-2 is the simplest way to go and you may want to consider doing this if you do not intend to work this side business into significant income.

However, a 1099 gig is preferred by many in some situations. For things like travel expenses, you will probably receive the income from these on a 1099, but you can deduct them from your income using a Schedule C. Along these lines you may be able to deduct a wide variety of other things like travel to and from the client's location, equipment such as computers and office supplies, and maybe a portion of your home internet bill. Also this opens up different retirement contributions schemes such as a simplified employee pension.

This does come with some drawbacks, however. First your life is more complicated as things need to be documented to become actual business expenses. You are much more likely to be audited by the IRS. Your taxes become more complicated and it is probably necessary to employee a CPA to do them. If you do this for primary full time work you will have to buy your own benefits. Most telling you will have to pay both sides of social security taxes on most profits. (Keep in mind that a good account can help you transfer profits to dividends which will allow you to be taxed at 15% and avoid social security taxes.)

So it really comes down to what you see this side gig expanding into and your goals. If you want to make this a real business, then go 1099, if you are just doing this for a fes months and a few thousand dollars, go W-2.

Answer 2

You can have multiple W2 forms on the same tax return. If you are using software, it will have the ability for you to enter additional W2 forms. If you are doing it by paper, just follow the instructions and combine the numbers at the correct place and attach both.

Similarly you can also have a 1099 with and without a W2. Just remember that with a 1099 you will have to pay the self employment tax ( FICA taxes, both employee and employer) and that no taxes will be withheld. You will want to either adjust the withholding on your main job or file quartely estimated taxes.

Travel reimbursement should be the same tax exempt wise. The difference is that with a 1098, you will need to list your business expenses for deduction on the corresponding tax schedule. The value on the 1099 will include travel reimbursement. But then you can deduct your self employment expenses. I believe schedule C is where this occurs.