In this article we will discuss the different pros and cons of 1099 employment, but first lets briefly discuss what a 1099 contractor is and how they differ from traditional W-2 employees.
A 1099 independent contractor is classified by the IRS as a self-employed individual who sets their own rate and schedule.
Furthermore, a 1099 contractor can not be told where or when to work but is also not entitled to any traditional benefits like a W-2 employee.
An example of 1099 employment would be an accounting firm contracting with a tax preparer to help out only for the busy tax season.
The main difference between a 1099 contractor and a W-2 employee is that the 1099 contractor is considered self-employed and gets paid based on the terms of their agreement without any payroll taxes being withheld.
On the other hand, a W-2 employee receives a regular wage, enjoys traditional benefits, and has payroll taxes withheld throughout the year.
There are some incredible benefits that come with working as a an independent contractor, and we will discuss these perks in more detail below.
One of the greatest benefits of contract work is that you have control over how and when you complete your work.
Independent contractors have the ability to manage their own working arrangements without having to worry about any company policies or mandatory trainings to attend, your only responsibility is completing the work you're contracted for in accordance with the terms you agreed to.
Another great perk of working as a 1099 contractor is that your potential to earn more money greatly improves due to your ability to set your own rate and work on multiple projects at a time.
As an independent contractor you are authorized to completely set your own working schedule, meaning that you have complete control over how often (and where) you work.
This is a massive upside compared to W-2 employment, where more often than not you are expected to start and stop work at a certain time while also being expected to complete your work at a specific location designated by your employer.
As a general rule, 1099 contractors have the potential to pay less taxes compared to W-2 employees due to the fact that as an independent contractor you are entitled to deductions.
In order to take full advantage of this 1099 benefit, it is absolutely crucial that you find a competent accountant or CPA that has experience working with independent contractors to help you maximize your tax savings this tax season.
Of course working as a freelancer can't be all sunshine and rainbows, so here are some of the drawbacks to working as an independent contractor.
When it comes to working as an independent contractor, you don't receive all of the same benefits that come with a traditional job. Some of the traditional benefits that you miss out on include paid time off, sick leave, overtime pay, healthcare, insurance, retirement plans, and more.
Normally if you don't have a network already built up for you to leverage, it may be difficult to find quality clients right from the start.
Many times it will takes months to build up a client base that can support you the same way a W-2 job would, and in some cases independent contractors are never able to match the compensation of more traditional employment options.
It is highly important that you understand the risks associated with choosing the 1099 employment route before going all in.
As an independent contractor, you are expected to already have all of the tools, supplies, and equipment needed to complete your work.
In other words, you can't expect your client to provide any of the equipment needed to complete the job unlike in a W-2 environment where the employer is expected to provide for the employees.
The need to purchase your own equipment can increase your expenses and decrease the amount of money you take home at the end of the project which is why this is an important downside to be aware of.
When you work as a full-time employee, you usually have a team or support system of people in similar roles that you can lean on when projects start to get tough.
However, while living the 1099 contractor life, work can tend to get rather lonely if you are operating as a solo without any other collaboration.
A great way to avoid this feeling of isolation is to join a coworking space filled with other like-minded freelancers who you can share ideas and struggles with.
Working as an independent contractor definitely isn't for everyone due to the various drawbacks and risks, but if you like the idea of deciding where and when you work without having to worry about attending mandatory meetings or trainings then seeking a life as a 1099 contractor may be the perfect fit for you.
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