Prior to 2018, my recommendation was to be paid as W2 employee because you would not be responsible for up to 7.65% in Social Security and Medicare taxes (that responsibility would be on the employer). Because of the 2018 Tax Cut and Jobs Act, my position now is 1099 independent contractor assuming few to no W2 employer sponsored benefits (i.e., health insurance, retirement plan). Here’s several reasons why:
The 2018 Tax Cut and Jobs Acts no longer allows W2 employees to claim tax deductions for “unreimbursed employee expenses”. For associate dentists, this would include CE courses, dental equipment, associate dues, lab fees, malpractice insurance, etc. paid by the associate dentist.
As a 1099 independent contractor, CE courses, dental equipment, lab fees, association dues, malpractice insurance, as well as other expenses, are tax deductible. The tax treatment favors the 1099 independent contractor.
The 2018 Tax Cut and Jobs Act authorized a new tax deduction available to 1099 independent contractor, but not W2 employees (more specifically this new tax deduction is available to any “pass through entity” which includes 1099 independent contractors). This new tax deduction is called the Qualified Business Income (QBI) deduction. This tax deduction allows qualified businesses to reduce their taxable income by up to 20%. For more details, please read my blog post: https://www.sigmafinanciasoluctionsinc.com/blog. Again, this tax treatment favors the 1099 independent contractor.
Identifying the optimal tax mitigation strategy, given this complex environment, can be challenging. Your individual facts and circumstances must be analyzed in developing a comprehensive tax strategy.