Get answers to the most common questions about taxes, bookkeeping, and business structure.
When you receive 1099 income (as a freelancer, contractor, or gig worker), taxes aren't automatically withheld like with a W-2 job. You're responsible for paying both income tax AND self-employment tax (15.3% for Social Security and Medicare).
You'll report this income on Schedule C of your tax return and must make quarterly estimated tax payments to the IRS to avoid penalties.
Most tax professionals recommend setting aside 25-30% of your gross 1099 income for taxes. This covers both federal income tax and the 15.3% self-employment tax.
Lower income brackets: 20-25% | Middle income: 25-30% | Higher income: 30-35%
Pro tip: Open a separate savings account and transfer your tax percentage after every payment you receive.
Read our full guide: How Much Should You Set Aside for Taxes? →
Yes, you must report ALL income, regardless of whether you received a 1099 form. The IRS requires you to report all taxable income, even if it's just $50.
However, you only need to file a tax return if your net self-employment income exceeds $400.
There's no single "1099 tax rate." Your tax is calculated based on two components:
1. Self-Employment Tax: 15.3% (12.4% Social Security + 2.9% Medicare)
2. Federal Income Tax: 10-37% depending on your tax bracket
Combined, most 1099 workers pay an effective rate of 20-35% of their net income.
You can't avoid taxes entirely, but you can legally minimize what you owe:
1. Track ALL deductions - home office, mileage, equipment, software
2. Contribute to retirement accounts - SEP-IRA, Solo 401(k)
3. Consider S-Corp election - can save thousands on self-employment tax
4. Pay quarterly estimates - avoids underpayment penalties
5. Use the QBI deduction - 20% deduction on qualified business income
Read our full guide: Quarterly Tax Payments for Freelancers →
The biggest differences:
Tax Withholding: W-2 is automatic, 1099 you handle it yourself
Self-Employment Tax: W-2 employer pays half, 1099 you pay all 15.3%
Deductions: W-2 is limited, 1099 has many business deductions
Payment Frequency: W-2 per paycheck, 1099 quarterly estimates
The most costly mistakes:
1. Not paying quarterly estimates - leads to penalties
2. Missing deductions - many freelancers leave money on the table
3. Mixing personal and business expenses - use separate accounts
4. Not tracking mileage - this adds up fast (67 cents/mile in 2024)
5. Forgetting about state taxes
6. Not keeping receipts - you need documentation for audits
See our complete list: Tax Deductions for Content Creators →
This is one of the most misunderstood topics in small business:
LLC = A legal business structure (entity type) that provides liability protection
S-Corp = A tax election (how you're taxed), not a business structure
Key point: An LLC can elect to be taxed as an S-Corp while remaining an LLC legally.
Read our full guide: LLC vs S-Corp - Which Is Right for You? →
The general rule: Consider S-Corp when net profits exceed $40,000-50,000 per year.
Why? S-Corp requires you to pay yourself a "reasonable salary" (subject to payroll taxes), but profits above that salary are distributed without self-employment tax.
Example: On $100K profit, S-Corp election could save $5,000-8,000 in self-employment taxes.
Read our full guide: LLC vs S-Corp - Which Is Right for You? →
The IRS requires S-Corp owners who work in the business to pay themselves a "reasonable salary" before taking distributions. This salary must be comparable to what you'd pay someone else to do your job.
Factors: Industry standards, your experience, time spent, geographic location.
Warning: Setting salary too low is a red flag for IRS audits.
You don't actually "convert" - you elect S-Corp tax treatment while keeping your LLC structure:
1. File IRS Form 2553
2. File within 75 days of the start of the tax year
3. Set up payroll for owner salary
4. Start filing Form 1120-S annually
S-Corp isn't right for everyone. Downsides include:
- Payroll requirements - Must run payroll and file quarterly
- Additional tax filings - Form 1120-S is more complex
- Reasonable salary scrutiny - IRS watches this closely
- Added costs - Payroll service, accountant fees
If profits are under $40K, the costs often outweigh the tax savings.
For passive rental income, an LLC taxed as a disregarded entity or partnership is usually better because:
- Rental income isn't subject to self-employment tax anyway
- S-Corp adds unnecessary complexity and costs
- Property transfers into S-Corps can trigger tax issues
However, if you're actively flipping houses, S-Corp may make sense.
If you own more than 2% of an S-Corp, you're treated differently for certain benefits:
- Health insurance premiums must be added to your W-2
- Fringe benefits like group term life insurance are taxable
- HSA contributions made by the company are treated as wages
Bookkeeping costs vary based on your business size:
Basic bookkeeping: $150-300/month
Mid-level: $300-500/month
Full-service: $500-1,000+/month
At TFMA, our bookkeeping starts at $150/month.
Yes, generally. Here's the difference:
Bookkeeper ($25-50/hr): Records transactions, reconciles accounts, manages invoices
Accountant ($50-150/hr): Analyzes financials, provides tax strategy, offers business advice
CPA ($100-400/hr): Licensed to prepare taxes, represent you before IRS
A full-charge bookkeeper handles ALL accounting functions except those requiring a CPA license:
- All daily bookkeeping tasks
- Payroll processing
- Accounts payable and receivable
- Financial statement preparation
- Month-end and year-end closing
The three golden rules:
1. Debit what comes in, credit what goes out (real accounts)
2. Debit the receiver, credit the giver (personal accounts)
3. Debit expenses and losses, credit income and gains (nominal accounts)
Simply put: Every transaction has two sides - for every debit, there must be an equal credit.
QuickBooks-specific services typically cost:
QuickBooks setup: $300-1,000 (one-time)
Monthly bookkeeping in QBO: $150-500/month
QuickBooks cleanup: $50-100/hour
Training: $50-150/hour
You might need an accountant if:
- Your revenue exceeds $50-100K
- You have employees or contractors
- You're considering LLC or S-Corp election
- Your taxes are getting complicated
- You're spending 5+ hours/month on books
Accounting fees vary widely:
Monthly bookkeeping + accounting: $200-1,500/month
Tax preparation (Schedule C): $200-500
Tax preparation (S-Corp): $500-1,500
Hourly consulting: $100-300/hour
Different types of accountants:
CPA: Best for tax planning, complex returns, IRS representation
Tax Accountant: Focuses on tax preparation and compliance
Management Accountant: Helps with budgeting and business decisions
Most small businesses benefit from a CPA or tax accountant who understands small business needs.
Key milestones that signal it's time:
- Revenue hits $50K+
- You hire your first employee
- You're considering an LLC or S-Corp
- You received a 1099
- You owed a surprise tax bill
- Your side hustle becomes your main hustle
Here's how to pay quarterly estimated taxes:
1. Calculate your estimated tax using Form 1040-ES
2. Pay online at IRS.gov/payments (easiest method)
3. Pay by mail with a check and Form 1040-ES voucher
4. Set up EFTPS for scheduled payments
Read our full guide: Quarterly Tax Payments for Freelancers →
Quarterly estimated tax due dates for 2025:
Q1 (Jan-Mar income): April 15, 2025
Q2 (Apr-May income): June 16, 2025
Q3 (Jun-Aug income): September 15, 2025
Q4 (Sep-Dec income): January 15, 2026
Read our full guide: Quarterly Tax Payments for Freelancers →
If you don't pay quarterly estimates and owe more than $1,000 at tax time:
- Underpayment penalty: Currently around 8% annual rate
- Large April bill: The full year's tax comes due at once
- Cash flow stress
You can avoid penalties if you pay at least 90% of current year tax OR 100% of prior year tax.
Yes! The IRS doesn't care when you pay, as long as you've paid enough by each quarterly deadline.
Many freelancers find it easier to set aside 25-30% of each payment and make monthly payments to the IRS. Use IRS Direct Pay or EFTPS to make payments anytime.
Common deductions for 1099 workers:
- Home office: Dedicated space used exclusively for business
- Vehicle/mileage: 67 cents/mile for 2024
- Equipment: Computer, phone, camera, tools
- Software: Subscriptions used for business
- Professional services: Accountant, lawyer
- Education: Courses/training related to your work
- Health insurance: Self-employed health insurance deduction
- Retirement contributions: SEP-IRA, Solo 401(k)
See our complete list: Tax Deductions for Content Creators →
You can deduct home office expenses if you have a space used regularly and exclusively for business. Two methods:
Simplified method: $5 per square foot, up to 300 sq ft ($1,500 max)
Regular method: Calculate actual expenses multiplied by percentage of home used
Note: W-2 employees cannot claim home office deduction, but 1099 workers can.
Read more: Tax Deductions for Content Creators and Influencers →
The Qualified Business Income (QBI) deduction lets eligible self-employed individuals deduct up to 20% of their qualified business income.
Eligibility depends on your total taxable income, type of business, and whether you have W-2 wages or property in the business.
On $100K of business income, the QBI deduction could save you $4,000-5,000+ in taxes.
Can't find what you're looking for? Schedule a free consultation and get personalized answers.
Book a Free Consultation