Sole Proprietorship or Independent Contractor? Business Expenses?

[maz_phil]

Hello Mustachians,

Tax Question: I was a contractor for the past 10 months. I would commute for this job about 100 miles daily round trip. I was contracted through a head hunter agency, but am I able to qualify for a sole proprietorship? Can I retroactively apply this title to myself, and if I can, can I write off the miles at the 2018 IRS Tax deduction rate? I have researched this question online, but the line gets very blurry because I was contracted through someone and I am fairly unfamiliar with these sorts of tax questions.

Additionally, I am still contracted part time with a business in another city. I commute to this city 3-5 times weekly at around 80-100 miles round trip. For this job, I am not contracted through the company and work independently. Would this also be able to qualify? Could the miles I spend driving count towards me? Are there any substantial downsides, aside from liability for doing this and am I able to retroactively apply this status to receive the tax benefit for all of the miles I have driven?

Looking forward to hearing your thoughts and expertise, thanks
Maz_Phil

[terran]

If you receive a 1099 (not a w2) then you're a sole proprietor (well, assuming you're not some other business entity, but you'd know that). It's not really blurry for you once you know how the business that hired you will report it, although it can still be blurry in terms of whether they should be classifying you as a contractor or employee. That's on them though.

You can't deduct commuting miles, but you can deduct business miles. This means you can't deduct miles between your home and your first place of business or between your last place of business and your home, but you can deduct miles between places of business. This might help: https://www.mileiq.com/blog/irs-commuting-rule-definition/

Perhaps the best way to turn commuting miles into business miles, and also a good deduction in itself, is to establish a home office. A home office must be a separate space that you use regularly and exclusively for business (guest rooms that are mostly used for business except when you have a guest don't count for example). How this helps turn commuting miles into business miles is that if you're careful to do some work in your home office as the first and last thing you do during the workday then your commute becomes your walk between you home and your home office and the miles you drive become business mileage between your home office and secondary work locations. That's my understanding of it anyway, but I don't do much business driving, so it's not something I've looked into very much.

You might also consider opening a Solo 401(k) or a SEP IRA and making contributions to that to lower you income. If you decide to go with a 401(k) You need to open it by year end and make it effective on January 1 of this year, but you don't have to actually fund it until your tax filing deadline. If you decide to open a SEP IRA then you can open and fund it any time up until your tax filing deadline.

[maz_phil]

If you receive a 1099 (not a w2) then you're a sole proprietor (well, assuming you're not some other business entity, but you'd know that). It's not really blurry for you once you know how the business that hired you will report it, although it can still be blurry in terms of whether they should be classifying you as a contractor or employee. That's on them though.

You can't deduct commuting miles, but you can deduct business miles. This means you can't deduct miles between your home and your first place of business or between your last place of business and your home, but you can deduct miles between places of business. This might help: https://www.mileiq.com/blog/irs-commuting-rule-definition/

Perhaps the best way to turn commuting miles into business miles, and also a good deduction in itself, is to establish a home office. A home office must be a separate space that you use regularly and exclusively for business (guest rooms that are mostly used for business except when you have a guest don't count for example). How this helps turn commuting miles into business miles is that if you're careful to do some work in your home office as the first and last thing you do during the workday then your commute becomes your walk between you home and your home office and the miles you drive become business mileage between your home office and secondary work locations. That's my understanding of it anyway, but I don't do much business driving, so it's not something I've looked into very much.

You might also consider opening a Solo 401(k) or a SEP IRA and making contributions to that to lower you income. If you decide to go with a 401(k) You need to open it by year end and make it effective on January 1 of this year, but you don't have to actually fund it until your tax filing deadline. If you decide to open a SEP IRA then you can open and fund it any time up until your tax filing deadline.

Terran, thank you very much for your response. For the miles I travel for this work, how do I go about proving that I do, in fact, work there as I say? For my part time job, I work based off of commission. Would I be able to report all the miles I traveled for work before I establish myself as a 1099 employee?

[terran]

I'm not a tax professional, but I think a written log of the date, where you started/stopped your drive, and what you did there would be sufficient. If you're wanting to use a home office as your first/last business location so the miles between there and your next/previous business location are business miles, not commuting miles you might also want to keep a log of what work you did in your home office so you have evidence that backs up the fact that you did some work in your home office before going to the next business location instead of just walking out of your house to start your day.