One of the main differences between a
W-2 employee and a 1099 worker is that a 1099 worker benefits from a larger deduction from their taxable income. When working as a self-employed individual, you can deduct many qualifying business expenses, significantly lowering your taxable income.
Let's say you are a freelance digital marketing executive and your annual taxable income is close to $55,000. Under normal circumstances, you'll pay around $9,000 in taxes. But as a 1099 worker, you can lower your taxable income, thanks to business expense deductions.
In the above example, let's find the taxable income after considering the following deductions:
These deductibles add up to a total of $17,700. The taxable income now stands in a lower tax bracket of $995 and $40,525. You'll now be taxed at 12% instead of 22%. The final tax to be paid is now $4,723 less than $9,000.
The only problem is that to find these deductions, you'll have to classify all the expenses manually, which is a time-consuming process. To speed things up, you can use FlyFin, which uses A.I. to find all your business expenses in minutes. FlyFin's
1099 tax calculator is another great tool to help you with figuring out your
self-employment deductions.