W2 vs 1099

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onconc

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*** X-posted from the main IM subspecialties page ***

For the same income; and relatively low expenses, is it better to be on W2 or 1099

Income : 1M
Annual expenses : 200k

Let's say your total annual expenses including everything (car lease, mortgage, kids tuition, underwear, shaving cream , absolutely everything) is $200k. So 200k becomes the upper limit of what you can possibly deduct.

1099 route
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With 1m, and taking these 200k deductions, taxable income becomes 800k. So 800k gets taxed at personal income tax rates. When I plug it into Federal Income Tax Calculator (2022-2023)
for Los Angeles, I get my final take home pay at $485k; which is purely savings, since I have already accounted for all my expenses

Net annual amount going into savings : $485k

W2 route
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Entire 1m gets taxed at personal income tax rates.
When I plug it into
Federal Income Tax Calculator (2022-2023)
for Los Angeles, I get my final take home pay at $584k. But from this amount, I need to deduct my expenses of $200k which are paid with post tax money and no tax deductions.

Net annual amount going into savings : $384k


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So net difference in savings per year is about $100k (difference between $485k and $384k). Actual difference in real life is probably going to be much less since not all of my $200k expenses are tax deductible. A more realistic deduction would be for $50k perhaps.

Am I missing anything ?

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How are you going to deduct your underwear cost from 1099 income?
-IRS
 
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