Any hints regarding 1099 income in Retirement?

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David Jay
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Any hints regarding 1099 income in Retirement?

Post by David Jay »

I'm looking to help out a friend with some RV hauling and setup (he can't find workers - strange, huh?) and it will be 1099. This will likely be just a couple of thousand dollars for the year, but I am looking for any insights up front.

I don't think it is worth the complexity to do anything beyond contributing all the earnings to a tIRA (all deductible). As I recall, I will still need to pay SS and Medicare tax on the net income?

I plan to do a trial Schedule C (haven't done one of those for a few decades), but I was looking for any hints before I begin.
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terran
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Re: Any hints regarding 1099 income in Retirement?

Post by terran »

Yes, you'll pay SE tax (employee + employer portion of medicare and social security tax) regardless of contributions to retirement plans. If you want to maximize your contributions to retirement plans I'm fairly sure you contribute to a Roth solo 401(k) and an IRA based on the same income.
livesoft
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Re: Any hints regarding 1099 income in Retirement?

Post by livesoft »

Schedule C is pretty trivial for something like this. I have filed a Schedule C for decades (but not for 2020, thanks to covid). There is also Schedule C-EZ. [Thanks terran]

Schedule SE is where FICA / Medicare are determined.

You don't need any hints. Tax-prep software is easy to use, too.

No need for a solo 401(k) since it appears you are retired and the earned income would be less than the IRA contribution limits.
Last edited by livesoft on Fri Jun 18, 2021 9:04 am, edited 1 time in total.
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terran
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Re: Any hints regarding 1099 income in Retirement?

Post by terran »

livesoft wrote: Fri Jun 18, 2021 8:59 am There is also Schedule C-EZ.
Not anymore. Schedule C-EZ was discontinued in 2019.
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David Jay
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Re: Any hints regarding 1099 income in Retirement?

Post by David Jay »

livesoft wrote: Fri Jun 18, 2021 8:59 amNo need for a solo 401(k) since it appears you are retired and the earned income would be less than the IRA contribution limits.
Yeah, I figured that the FICA and Medicare taxes (15.3%) weren't worth the effort for perhaps $150 in tax savings.
Last edited by David Jay on Fri Jun 18, 2021 9:11 am, edited 1 time in total.
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Katietsu
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Re: Any hints regarding 1099 income in Retirement?

Post by Katietsu »

David Jay wrote: Fri Jun 18, 2021 9:08 am
livesoft wrote: Fri Jun 18, 2021 8:59 amNo need for a solo 401(k) since it appears you are retired and the earned income would be less than the IRA contribution limits.
Yeah, I figured that the FICA (15.3%) and Medicare (3.8%) taxes weren't worth the effort for perhaps $200 in tax savings.
You do not save on self employment taxes with a solo 401k, so you are not even missing out on that.
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David Jay
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Re: Any hints regarding 1099 income in Retirement?

Post by David Jay »

Katietsu wrote: Fri Jun 18, 2021 9:10 am
David Jay wrote: Fri Jun 18, 2021 9:08 am
livesoft wrote: Fri Jun 18, 2021 8:59 amNo need for a solo 401(k) since it appears you are retired and the earned income would be less than the IRA contribution limits.
Yeah, I figured that the FICA (15.3%) and Medicare (3.8%) taxes weren't worth the effort for perhaps $200 in tax savings.
You do not save on self employment taxes with a solo 401k, so you are not even missing out on that.
Thanks, I thought 401K came out before FICA.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
tj
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Re: Any hints regarding 1099 income in Retirement?

Post by tj »

David Jay wrote: Sat Jun 19, 2021 11:25 am
Katietsu wrote: Fri Jun 18, 2021 9:10 am
David Jay wrote: Fri Jun 18, 2021 9:08 am
livesoft wrote: Fri Jun 18, 2021 8:59 amNo need for a solo 401(k) since it appears you are retired and the earned income would be less than the IRA contribution limits.
Yeah, I figured that the FICA (15.3%) and Medicare (3.8%) taxes weren't worth the effort for perhaps $200 in tax savings.
You do not save on self employment taxes with a solo 401k, so you are not even missing out on that.
Thanks, I thought 401K came out before FICA.
....if they did....401k distributions would be subject to FICA taxes. They aren't. Thank goodness, what a mess that would be to administer.
fyre4ce
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Re: Any hints regarding 1099 income in Retirement?

Post by fyre4ce »

A few thoughts:
  • Schedule C is where you will put this income. It's very easy. FICA taxes get paid on Schedule SE (Form 1040 Schedule 2 line 4), and half are deductible against income tax (Form 1040 Schedule 1 line 14).
  • You can deduct reasonable business expenses connected to this income, also on Schedule C. In your case it would probably just be mileage, and only that if you make trips that are not classified as a commute (check out IRS Pub 463). If you have a home office that's connected to this business income, trips from your home to/from work sites become deductible. It's probably a stretch to set up/deduct a home office for this type of work, but if you already have a home office and you can connect it to this income, then I would. You can also look into deducting a percentage of phone expenses, internet expenses, etc. although again, in your case it might be too much of a stretch. Don't deduct anything you're not comfortable explaining to an IRS auditor.
  • You didn't mention your age, but I helped another retiree (age >72) with some part-time 1099 income, and we determined that while it is possible to contribute pre-tax when you are subject to an RMD, it would complicate things because she had no starting pre-tax assets. So, we decided to just go 100% Roth. If you're <72 and/or have more pre-tax assets so the RMD isn't an issue, just make the choice based on the usual criteria.
  • You can "double-contribute" to an IRA and a Solo 401k from the same income, if the Solo 401k contributions are Roth. IRA contributions are limited to either your W-2 Box 1 wages, or Schedule C income minus 1/2 SE taxes and any deductible retirement plan contributions. So you can contribute your full net income to a Solo 401k as Roth, then decide whether to contribute again to a tiRA or Roth IRA.
Hope this helps.
trueblueky
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Re: Any hints regarding 1099 income in Retirement?

Post by trueblueky »

My general advice for someone starting to receive 1099 income is to review Schedule C. It has several categories of expenses that can be deducted from that income. Keep records in a way that's easy to allocate the expenses to the categories.

Keep receipts. Keep track of your beginning and end odometer readings for the year. Track each business deductible trip. Keep a log book in the glove compartment for that. Or if you make many trips to just a few places, keep track like that (32 trips to Home Depot to pick up supplies, 8 miles each). I recommend taking the mileage deduction vs. actual expenses and depreciation.

I don't see this particular business as one that would have many expenses (assume your friend pays for advertising, license and fees, office expenses and such).
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LilyFleur
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Re: Any hints regarding 1099 income in Retirement?

Post by LilyFleur »

I don't know how it works with Medicare--I still buy my expensive health insurance on the open market, but for 2020, I ran my taxes with my health insurance premiums above-the-line for my part-time self employment and then as a regular deduction along with my out-of-pocket medical expenses included, and I saved $86 by taking it as a regular deduction.
tj
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Re: Any hints regarding 1099 income in Retirement?

Post by tj »

LilyFleur wrote: Sun Jun 20, 2021 3:13 pm I don't know how it works with Medicare--I still buy my expensive health insurance on the open market, but for 2020, I ran my taxes with my health insurance premiums above-the-line for my part-time self employment and then as a regular deduction along with my out-of-pocket medical expenses included, and I saved $86 by taking it as a regular deduction.

That seems surprising. Were you already above the standard deduction when you added the medical expenses? Did you have other medical expenses besides the premium?
trueblueky
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Re: Any hints regarding 1099 income in Retirement?

Post by trueblueky »

LilyFleur wrote: Sun Jun 20, 2021 3:13 pm I don't know how it works with Medicare--I still buy my expensive health insurance on the open market, but for 2020, I ran my taxes with my health insurance premiums above-the-line for my part-time self employment and then as a regular deduction along with my out-of-pocket medical expenses included, and I saved $86 by taking it as a regular deduction.
Good reminder.

As a self-employed individual, you can take an adjustment to income of your health insurance, including LTC insurance, up to the amount of your net Schedule C profit (net in that you don't get to subtract half the Form SE amount twice) on line 16 of Schedule 1. Your Medicare alone may be enough to zero out the income.

Check Schedule A to see whether it makes more sense to itemize. With the higher standard deduction, it may not.
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LilyFleur
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Re: Any hints regarding 1099 income in Retirement?

Post by LilyFleur »

tj wrote: Sun Jun 20, 2021 3:30 pm
LilyFleur wrote: Sun Jun 20, 2021 3:13 pm I don't know how it works with Medicare--I still buy my expensive health insurance on the open market, but for 2020, I ran my taxes with my health insurance premiums above-the-line for my part-time self employment and then as a regular deduction along with my out-of-pocket medical expenses included, and I saved $86 by taking it as a regular deduction.

That seems surprising. Were you already above the standard deduction when you added the medical expenses? Did you have other medical expenses besides the premium?
No, I don't have a mortgage, so without the medical premiums and co-pays, I would not have exceeded the standard deduction. I have a platinum plan, about $20,000 a year in premiums, and a couple thousand in co-pays. I have an expensive, chronic health condition and am experiencing some of the long-term side effects. It is expensive but keeps me independent and functional, and I have a good life. I also have property taxes and state income tax to deduct, probably around $5,000 per year.

My self-employment has been a blessing (a friend called me for help late last year); my pre-tax earnings are approximately the same amount as my medical costs, so it is helpful.

There are ceilings on income from a job if you are collecting Social Security, and you pay penalties (SS is reduced by a certain amount for every dollar over the ceiling). I think the penalties start if you earn more than around $18,000, I'm not exactly sure and I don't have the links at my fingertips. And I think beyond a certain age, they don't charge the penalties, but don't take my word for it. I researched it when I got my current job. It sounds like that won't be a problem for you.
tj
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Re: Any hints regarding 1099 income in Retirement?

Post by tj »

LilyFleur wrote: Sun Jun 20, 2021 3:41 pm
tj wrote: Sun Jun 20, 2021 3:30 pm
LilyFleur wrote: Sun Jun 20, 2021 3:13 pm I don't know how it works with Medicare--I still buy my expensive health insurance on the open market, but for 2020, I ran my taxes with my health insurance premiums above-the-line for my part-time self employment and then as a regular deduction along with my out-of-pocket medical expenses included, and I saved $86 by taking it as a regular deduction.

That seems surprising. Were you already above the standard deduction when you added the medical expenses? Did you have other medical expenses besides the premium?
No, I don't have a mortgage, so without the medical premiums and co-pays, I would not have exceeded the standard deduction. I have a platinum plan, about $20,000 a year in premiums, and a couple thousand in co-pays. I have an expensive, chronic health condition and am experiencing some of the long-term side effects. It is expensive but keeps me independent and functional, and I have a good life. I also have property taxes and state income tax to deduct, probably around $5,000 per year.

My self-employment has been a blessing (a friend called me for help late last year); my pre-tax earnings are approximately the same amount as my medical costs, so it is helpful.

There are ceilings on income from a job if you are collecting Social Security, and you pay penalties (SS is reduced by a certain amount for every dollar over the ceiling). I think the penalties start if you earn more than around $18,000, I'm not exactly sure and I don't have the links at my fingertips. And I think beyond a certain age, they don't charge the penalties, but don't take my word for it. I researched it when I got my current job. It sounds like that won't be a problem for you.
I'm 36 - so uh, yeah, it won't be a problem for me for a long time. :mrgreen:
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LilyFleur
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Re: Any hints regarding 1099 income in Retirement?

Post by LilyFleur »

tj wrote: Sun Jun 20, 2021 4:02 pm
LilyFleur wrote: Sun Jun 20, 2021 3:41 pm
tj wrote: Sun Jun 20, 2021 3:30 pm
LilyFleur wrote: Sun Jun 20, 2021 3:13 pm I don't know how it works with Medicare--I still buy my expensive health insurance on the open market, but for 2020, I ran my taxes with my health insurance premiums above-the-line for my part-time self employment and then as a regular deduction along with my out-of-pocket medical expenses included, and I saved $86 by taking it as a regular deduction.

That seems surprising. Were you already above the standard deduction when you added the medical expenses? Did you have other medical expenses besides the premium?
No, I don't have a mortgage, so without the medical premiums and co-pays, I would not have exceeded the standard deduction. I have a platinum plan, about $20,000 a year in premiums, and a couple thousand in co-pays. I have an expensive, chronic health condition and am experiencing some of the long-term side effects. It is expensive but keeps me independent and functional, and I have a good life. I also have property taxes and state income tax to deduct, probably around $5,000 per year.

My self-employment has been a blessing (a friend called me for help late last year); my pre-tax earnings are approximately the same amount as my medical costs, so it is helpful.

There are ceilings on income from a job if you are collecting Social Security, and you pay penalties (SS is reduced by a certain amount for every dollar over the ceiling). I think the penalties start if you earn more than around $18,000, I'm not exactly sure and I don't have the links at my fingertips. And I think beyond a certain age, they don't charge the penalties, but don't take my word for it. I researched it when I got my current job. It sounds like that won't be a problem for you.
I'm 36 - so uh, yeah, it won't be a problem for me for a long time. :mrgreen:

People's financial situations are highly individual. But it's great you're here at your age. I discovered this forum when I was 57.
:sharebeer
tj
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Re: Any hints regarding 1099 income in Retirement?

Post by tj »

LilyFleur wrote: Sun Jun 20, 2021 4:08 pm
tj wrote: Sun Jun 20, 2021 4:02 pm
LilyFleur wrote: Sun Jun 20, 2021 3:41 pm
tj wrote: Sun Jun 20, 2021 3:30 pm
LilyFleur wrote: Sun Jun 20, 2021 3:13 pm I don't know how it works with Medicare--I still buy my expensive health insurance on the open market, but for 2020, I ran my taxes with my health insurance premiums above-the-line for my part-time self employment and then as a regular deduction along with my out-of-pocket medical expenses included, and I saved $86 by taking it as a regular deduction.

That seems surprising. Were you already above the standard deduction when you added the medical expenses? Did you have other medical expenses besides the premium?
No, I don't have a mortgage, so without the medical premiums and co-pays, I would not have exceeded the standard deduction. I have a platinum plan, about $20,000 a year in premiums, and a couple thousand in co-pays. I have an expensive, chronic health condition and am experiencing some of the long-term side effects. It is expensive but keeps me independent and functional, and I have a good life. I also have property taxes and state income tax to deduct, probably around $5,000 per year.

My self-employment has been a blessing (a friend called me for help late last year); my pre-tax earnings are approximately the same amount as my medical costs, so it is helpful.

There are ceilings on income from a job if you are collecting Social Security, and you pay penalties (SS is reduced by a certain amount for every dollar over the ceiling). I think the penalties start if you earn more than around $18,000, I'm not exactly sure and I don't have the links at my fingertips. And I think beyond a certain age, they don't charge the penalties, but don't take my word for it. I researched it when I got my current job. It sounds like that won't be a problem for you.
I'm 36 - so uh, yeah, it won't be a problem for me for a long time. :mrgreen:

People's financial situations are highly individual. But it's great you're here at your age. I discovered this forum when I was 57.
:sharebeer
Nice. Evidently, I joined when I was 24.
eddot98
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Re: Any hints regarding 1099 income in Retirement?

Post by eddot98 »

I did some 1099 work during retirement before RMD’s and after a few engagements decided it wasn’t worth it.
Unless I was going to make tens of thousands of dollars the taxes were just too high:
15.3% for Social Security and Medicare
22% Federal tax
5% state tax
So, I was getting 57.7% of gross pay.
My typical engagement was 3 days of work at locations too far from home for daily driving. I spent 3 nights away from home, got mileage, room, and board. Instructed the same all day class 3 times by myself, earned $2400 and kept $1384.80
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