In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss the important transition from W-2 to 1099 income and what it really means to become a 1099 contractor. Whether you’re considering Consulting income as part of a career shift, semi-retirement, or exploring Consulting after retirement, understanding the differences between W-2 vs 1099 is critical. This shift impacts everything from how you receive income to how you handle Estimated taxes, Tax deductions, and overall Tax strategy—all essential components of effective Retirement Planning and Financial planning for retirement.

Listen in to learn about the key financial and tax implications of earning Consulting income, including Quarterly tax payments, Estimated taxes, and the realities of managing your own income stream. If you’re planning retirement or building a retirement checklist that includes self-employment, this episode will help you better plan for retirement, avoid costly mistakes, and create a path toward retiring comfortably and secure your retirement.

In this episode, find out:

• The key differences between W-2 vs 1099 and what it means to become a 1099 contractor
• How Consulting income impacts Estimated taxes, Quarterly tax payments, and overall Tax strategy
• Common misconceptions about LLCs and why they don’t automatically reduce taxes
• Important Tax deductions available to self-employed individuals, including the home office deduction
• How Consulting after retirement fits into broader Retirement strategies and Self-employed retirement planning

Tweetable Quotes:

“An LLC is a legal structure for protection—not a tax strategy that changes how your Consulting income is taxed.” – Radon Stancil

“When you move from W-2 to 1099, you’re not just earning income—you’re responsible for managing your entire tax strategy and financial future.” – Murs Tariq

Resources:

If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!

To access the course, simply visit POMWealth.net/podcast.

Here’s the full transcript:

Welcome back to the Secure Your Retirement Podcast, and thanks for tuning in today on this Happy 

Monday. 

I’ve got a great guest here with me. So, before I go in and tell you what this episode is at all 

about, I just want to, for those of you who haven’t met Taylor Wolverton on our team, introduce you 

to her. And for those of you that have met her or spoken with her or heard her on this podcast 

before, you know you’re in for a good episode. So, Taylor, thank you for being here today with me. 

Yeah, thanks for having me. So, Taylor on our team, she is the Director of Financial Planning and 

Tax Strategy. And we sit here almost mid-year. And so, we’ve just finished up a financial planning 

strategy meetings with the families that we serve. And now Taylor’s kind of gearing up for tax 

strategy meetings for pretty much the remainder of the year. And we’ve talked a lot about what a 

tax strategy meeting is. But, you know, sometimes, well, I would say quite commonly we see a 

scenario, and this is what the episode’s about today, is we see a scenario of someone working a 

job. And, you know, in most scenarios, that’s a W-2 type of job where… 

is paid. Your income comes in. The taxes are taken out for you. A lot of it’s just done for you. 

The company is running a lot of things, so you can just be focused on your role within the company. 

But what happens from time to time is either you leave that job and you want to go start something 

else, maybe go be self-employed. or you have an opportunity to consult in your field and generate 

income without being associated necessarily with the company that you’re working with. 

So, you go from this thing called a W-2 type of employee to generating a 1099 tax document to 

report your income. And while that is a big shift, A lot of times we get questions around, 

well, how does this work? What do you need to know before you head down this consulting route? 

Being here in the Raleigh area, we’ve got a lot of tech companies. We’ve got a lot of 

pharmaceutical companies. So, it’s quite often that we see people leave. And then as part of their 

semi-retirement, they go back and consult. And it becomes a brand-new thing for them because what 

they start to learn is that they have to think more than just about the job that they’re doing, but 

also, how they structure their taxation, how they structure potentially business entities. how they 

pay their tax and all that stuff. So, I said, hey, Taylor, can we just talk this through so that 

people have at a high level what to expect if they have this opportunity coming their way? 

So, Taylor, I say we just dive in and, you know, take that person that’s going from W-2. Forget 

about what the opportunity is, but just assume that they have an opportunity that’s going to create 

a 1099 for them. And maybe explain what a 1099 is. 

And then let’s talk about, you know, what changes should they be anticipating as they transition 

into this world? Yes. As a 1099 contractor or consultant, 

whatever you want to call it, you’re now considered self-employed. So that means you are both your 

own employer and employee. You get both sides of the equation now, 

which does mean you’re responsible to pay your own taxes, federal taxes, 

state taxes, and self-employment taxes. Compare that to when you’re a W-2 employee, 

your employer takes care of a lot of that. But now you are the employer. So now that’s your 

responsibility to make sure you’re keeping on track with all those tax obligations and 

considerations like setting up. liability protections for yourself, 

thinking through the benefits that you may lose from your W-2 employer to now going to self 

-employment, things like your health insurance and your retirement savings contributions, and just 

preparing yourself for maybe some less consistent income. It might vary. 

You’re probably used to that consistent every other week or twice a month paycheck, 

but now when you’re self-employed. Maybe you earn more at the beginning of the year and then you 

have a slow season, maybe more at the end of the year. It’s just going to be a little varied as far 

as when and how you’re receiving that income. So just some things to kind of prepare yourself for 

and think through before you dive in. Yeah, I know that. When we have that client that was a W-2 

and then they transition into contract work, and we sit back down with them a year or two later and 

have the conversation of how’s it going. Oftentimes what I hear is I didn’t realize how much my 

employer did for me when I was working for them. So, if you think about the 401k plans, 

the taxes coming out of your paycheck, all these different benefits. When you go down the contract 

route, yes, sometimes your hourly rate or your value seems higher, and it feels like you can make a 

lot more money in the contract space. But what we sometimes forget is that there are a lot of 

things that the employer is covering for you that’s also part of compensation too. So, I think this 

is a great episode, a timely one too, with a lot of just things happening in the economy and 

everything like that and job changes happening all over the place. One that we get all the time 

though, Taylor, is around this idea of setting up an LLC. I’m a contractor now. 

Of course, I’m going to need a business entity and let me go set up an LLC. 

And so, I know there’s a lot of misconceptions around what an LLC is for, what are the benefits of. 

So could you just kind of walk us through if someone’s in that boat of considering setting it up, 

what should they be thinking about and what’s going to come with it and what’s not going to come 

with it? Yes. Yeah, we do get this question a lot. Should I set up an LLC? I think the most common 

misconception is that having an LLC somehow changes the way you pay your taxes when you’re self 

-employed. And that is not the case. An LLC is a legal structure, 

but it is not a tax strategy. Setting up an LLC alone really does not change. 

the way you pay your taxes or the way that your self-employment income is taxed at all. 

All that an LLC does is separate you and your personal assets from your business assets. 

So, the benefit truly of having an LLC is, let’s say, for example, you get sued, 

your business gets sued. You have an LLC now that protects your personal assets like your home and 

your car and your savings account from creditors that would otherwise try to collect on your 

personal assets in order to cover the lawsuit through your business. So, an LLC offers you a 

viability protection, protects your personal assets from your business and sets up that separation 

between business and personal assets. But again, does not change your taxation whatsoever. 

Right. Yeah. And I know that’s the big one is that people think. that if we set up an LLC, we have 

all these abilities and doors that open up for us. And the fact of the matter is, 

it’s really once you are a contractor, that’s where the door opens for you for certain types of tax 

things that you can be thinking about. But the LLC, so LLC stands for Limited Liability Company. 

And there’s different ways that you can set up your LLC. We’re not going to go into all of that 

today, but it’s just to create that distinction of An LLC is going to shield you a little bit. 

If something in your business was to go wrong, it’s going to protect your personal assets to a 

degree, hence, the limited liability. Well, it wouldn’t be fair if we did this episode without 

getting a little bit deeper into taxes when I have Taylor Wolverton on the line. So, let’s talk some 

about the taxes and comparing W-2 to going into this 1099 world. How does all this stuff work? 

Yes. Okay. So, if you’re self-employed and you are the only… 

owner, you don’t have any other like employees or there’s not like a partner involved in this, 

which I think is most common among our clients. They’re just, you know, doing the consulting on 

their own. But all of your consulting income or your 1099 income is reported on your own personal 

tax return. Fortunately, it does not mean you need to file a separate business tax return. 

It all just gets added to your own personal tax return on a schedule C is what it’s called. 

And on that Schedule C, all of your self-employment income is reported and all of your expenses 

are reported. We’ll get into more detail on some of those expenses to be aware of. But once all 

that information is tracked, that shows your net self-employment income. And based on that net 

self-employment income after your expenses are subtracted out, you will have a calculation take 

place to show your liability for federal tax, state tax, 

and also, self-employment tax. For your W-2 income, 

when you’re an employee of somebody else’s business, you pay federal tax and state tax. That’s 

normal. But the self-employment tax is really the newer piece that you will experience when you 

transition to self-employment. And the self-employment tax, there’s a few different names. 

But it all means the same thing. Sometimes you’ll hear it called FICA tax. Sometimes you’ll hear it 

called payroll tax. Sometimes it’s called Social Security and Medicare tax. Those are actually all 

the same, different names for all the same things. So, the two, 

the calculation that’s really taking place is Social Security tax is 6.2% of your net self 

-employment income. And then Medicare tax is 1.45% of your net self-employment income. 

When you are an employee, a W-2 employee of someone else’s business, you actually still pay this 

tax, but it just happens automatically. It comes out of your paycheck. even know it’s happening 

necessarily you don’t see it you don’t have to do anything about it just happens and it’s done 

with but now when you’re self-employed it’s your responsibility to pay that and also the other 

piece that’s important to know is that you pay the so total social security and Medicare is 7.65 

you pay 7.65 as an employee and 7.65 as an employer So both halves, 

employee and employer FICA or payroll or self-employment tax, whatever you want to call it, is 

there is an additional 15.3% tax that you will pay when you file your tax return and to be aware 

of. So that’s kind of the extra not so fun. thing that is taking place and the calculations taking 

place on your tax return to be aware of is that self-employment tax you’re responsible for right 

so yeah, another thing that kind of gets realized is that going back to the employer in a W2 world, 

taking care of a lot of those things, they are paying some of those taxes for you. So, you know, 

Taylor, when you said FICA, my head went to, I used to watch, well, I still do watch Friends, 

the Friends, the sitcom show a lot. And I remember when Rachel, I think it was Rachel, got her 

first job at the coffee shop. She gets her first paycheck expecting a big paycheck. 

And then she sees this thing and she sees the line by line of all the deductions taken out. 

And she goes and she cusses, but she basically says, who the heck is FICA and why are they taking 

all my money? And so that’s exactly it. When you go into the 1099 world, 

you become very aware of all these different taxes that you kind of overlook when you’re in the W 

-2 space. Yes. A little more painful because it’s more visible to you when you’re self-employed. 

Right. Exactly. And also, did we talk about how the taxes, did you mention how the taxes are paid? 

No. In normal scenarios in your W-2, it’s just withheld from your paycheck biweekly. 

And then that adds up and that adds up. And in most cases. come April tax time, you’re either 

getting a refund or you’re owing a little bit of money, but you’re paying along the way without 

almost realizing that you’re paying along the way. So how does it work in the self-employment 

space, contract space, when it comes to actually paying those taxes once you figure out all this 

FICA and all this stuff? Yes. Yeah, exactly. When you’re a W-2 employee, you’re working for 

somebody else. They automatically set that up for you. They pay federal tax for you. 

They pay state tax for you. They pay the FICA payroll tax for you. They send it to where it needs 

to go. You don’t really see it. You don’t really think about it too much. And then you file your 

tax return and all of that information gets reconciled and you’re done. When you’re self-employed. 

you need to take a little more action to make sure the taxes get where they need to go. So, for one, 

you need to be paying your federal tax that gets paid to the IRS. You can either mail a check or 

make a payment online. Same with FICA or payroll tax, self-employment tax, 

you also pay those to the IRS either through mailing a check or online. 

And then your state tax, you pay to the state. Same way, you can mail a check to the state or pay 

online. And the timing to do that is best to spread it out at least quarterly. 

You can pay whatever frequency works for your cash flow situation, but the IRS does expect that you 

pay your taxes as you earn your income. So, to spread it evenly throughout the year, they have 

quarterly deadlines or due dates to make those estimated tax payments. 

The first one is April 15th. The next one is June 15th, September 15th. 

And then the final quarter deadline is January 15th of the following year. 

So, for your 2026 estimated tax payments, you’d be paying your federal FICA or self-employment and 

state tax for the last quarter on January 15th, 2027. So those are important dates to keep in mind 

and be aware of and have some sort of thought process around, okay, I need to set aside this much 

from my income to Be prepared for that next quarterly deadline and pay federal self-employment and 

state tax so you know it’s coming and you’re not shocked. Right. 

Yeah. The biggest thing I could say, and this is just from seeing it happen over the years and even 

when I was younger, I coached a lot of different sports, and you’ve got younger kids that are paid 

as contractors, as 1099s. they, you know, they work at camps or they’re babysitters or, 

or, you know, summer jobs, odd jobs, random things that get paid 1099. And they think all of that 

money is theirs, where in fact, it’s not always the case. And so, realizing that that that big check 

that you get, whatever that is. It’s a gross amount and nothing’s been withheld from it yet. 

And it’s your job to properly withhold and pay those taxes. Once you get the hang of it, though, 

and you understand the contract space; it can be a pretty cool space. There’s a lot of flexibility 

there. You get to run your own business to a degree. And then there are some things that you can do 

to help with your taxation a little bit. And that’s where your deductions come in that are 

available in this space, whereas they’re not as available. in the W-2 space. So, let’s talk about 

some of those deductions, Taylor. Yeah. So, the good news is after talking about the less good news 

of having to pay your self-employment tax, the good news is when you are self-employed, you can 

deduct or write off a lot of the expenses that you incur through keeping your business going. 

So, one thing that… important is to have some sort of separation between your business income and 

expenses and your personal expenses so a lot of times is you set up your own business checking and 

savings account you can set up the same credit union you have your personal checking and savings 

account but just to be receiving all of your business income in one account and be paying all of 

your business expenses out of one account just easier for you to keep track of and when it does 

come time to file your tax return you can just look back at all those statements and see an easier 

recorded history of your income and expenses because that information needs to transfer to your tax 

return same for if you want to use like one business credit card or have a couple business credit 

cards to pay all of your business expenses you can pull a credit card statement and see all of your 

business expenses rather than having to sort through your personal credit card and figure out what 

was I paying for my personal life what was I paying for my business life you don’t want to have to 

go through all that extra time and trouble at tax preparation so get separate business bank 

accounts and credit cards yeah for expenses that you can write off like I said all the iris is that 

an expense is deductible if it’s incurred in the ordinary and necessary way of carrying on your 

trade or business so a lot of times that’s like software subscriptions if you’re using those for 

consulting, using your cell phone, the business use of your cell phone, travel, meals if you’re 

meeting with clients, if you’re using your car, like a lot of realtors, you’re driving to different 

showings, you can use some of those expenses and track your mileage on your car. If you’re buying 

office supplies or office furniture, equipment, if you have personal development or education 

classes that you’re taking, things like that, your business insurance, if you need E&O insurance, 

legal fees for setting up your LLC things like that anything associated with your business you 

want to keep track of to report that on your tax return the benefit is that all of your expenses 

are going to reduce all of those tax liabilities that you need to pay federal tax state tax and 

self-employment tax so as many expenses as we can report on that tax return is going to reduce the 

amount of taxes that you pay over time Yeah, and I would add a word of as many legitimate expenses 

as we can report as possible because there’s a lot of gray in this space. 

The common one is buying a car and writing it off fully. 

There’s a lot of rules around that type of stuff that you need. And just the deductions in general, 

there are limitations, there’s percentages of different types of income and a whole different space 

that we can’t really cover today. But the biggest thing that I would hear or when people would say, 

yeah, I just rode off the car, I just rode off the boat, right? Those can tend to be red flags. 

And you’re not getting… free you’re still having to pay the money to buy it you just get a tax 

benefit for it and it can be done legitimately but you’re still shelling out the cash so um you 

know when it comes to especially if you’re in your first year if you’re transitioning from w2 to 

1099 to contract work and it’s a brand-new world for you, you got two, 

two real options. One is that you go self-research it all yourself, set up whatever entity you 

think makes sense for your new business structure, and then figure out all the tax rules, or you 

work with a qualified CPA that can help you at least get it started and then give you things to 

think about, uh, and, and, um, kind of set you up for success rather than, 

you know, trying to, or making mistakes upfront and then trying to figure it out, which could 

potentially lead to penalties and audits and things that you definitely don’t want to go into. But 

Taylor, is there anything that we’ve missed here that you want to add or close us out on in this 

whole idea of 1099 contract work? Yeah. One other thing I just want to say a little bit more on as 

far as expenses too, because I talk about this a lot with our clients who are self-employed, 

is the use of a home office. A lot of the times if you are consulting or whatever your self 

-employment venture is going to be, you are working from home. And when you’re a W-2 employee, 

you do not get any benefit from working from home. But when you are self-employed, you can use 

expenses from maintaining your home and having an office space in your home to offset some of that 

self-employment income. And again, eventually reduce your taxes, of course, is the goal. So, in 

order to use a… or to deduct expenses for your home office, 

you have to have a space in your home that is used regularly and exclusively for your business. 

So, if your business desk is also your dining table, 

that’s not going to qualify as a home office. Or if your office is also the guest bedroom, 

that’s not going to qualify as a home office. It has to be exclusively where you work from for your 

self-employment. Some things to keep track of are the square footage of the space that you’re 

using in comparison to the square footage of your home. And then also think about all the expenses 

that you’re using to maintain your home, like even your mortgage interest or if you’re paying rent, 

property tax, homeowner’s insurance, utilities, Internet, HOA fees, if that applies, 

even indirect expenses like repairing the roof on your home. Some of your roof is going to cover 

your home office, so we can use some of that expense in proportion to whatever the home office 

space is in comparison to your whole home or things like getting new flooring in just the office 

space. So, things like that can also be important to keep track of. You may not think of that as a 

direct business expense. It may not be a direct business expense, but can still apply and be 

reported as an expense on your self-employment income. If you are having your tax return prepared 

and you’re not having conversations about that or submitting that information to your tax preparer, 

then I would make sure to bring that up. Right. Yeah. Yeah. 

So, you know, Taylor and I were talking before this episode and one of the bigger pieces when you 

go into the 1099 space, contract space, self-employed space is there are different new avenues for 

retirement savings. What we decided is we want to do a follow-up episode from here because it’ll 

take us another 20 minutes to walk through. the various types of self-employment retirement 

vehicles that you could set up. And so, we are going to come back with a whole other episode, not 

too long from the launch of this episode itself, to help you to kind of carry on the conversation 

of, hey, I’ve got my 1099, I’ve got my… Did I set up an LLC? Did I continue as a sole proprietor? 

I’ve got that stuff figured out. I figured out my quarterlies and I’m generating income now and I 

need ways to reduce my taxable income through some tax deferral and different types of saving 

vehicles like I had with my W-2 employee. So, we’re going to spend an episode on that as well. 

But the bottom line is, you know, this can be a confusing space. It can be something that a lot of 

people work 30, 40 years earning a W-2 and then they transition and they just don’t know how it 

works. The nice part is, is with Taylor and our team, we’re able to help people navigate that 

transition and she does it all the time every single year because it naturally happens in the world 

that we work in. If you have questions around this conversation that Taylor and I have had today or 

thoughts or concerns or anything like that, or you’re dealing with something that you’d like more 

guidance on, this is a big part of what we do as true holistic wealth management. We don’t just 

manage assets. We don’t just help with the investment side of things. We help you think through 

everything when it comes to your retirement life and your retirement success. So, Taylor, thank you 

again, for hopping on here today. I think this one’s going to be really valuable to our listeners. 

Thank you. All right, everyone, we will talk to you again next Monday.