Investor · Kingwood, TX · Member since 2016 · 43 posts · 14 votes
Hello,
So I am seeking some advice on my employment status. I have recently entered the real estate game after watching on the side lines for many years. My wife and I own now 3 properties and so far it’s been great. About 7 months ago I accepted a position with a company that offers me a 1099. I have tried to refinance and pull my money out of the properties to buy more but unable to qualify for a refi since I don’t have a long enough time as a 1099 employee.
I am thinking of requesting my employer to offer me a W2 which I am certain he will if I requested. My question is should I request to be a W2 employer and easily be able to get financing or remain a 1099 with great tax benefits and struggle with traditional financing and ultimately slowing my real estate growth.
I appreciate the feedback and look forward to the responses.
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
7y
Or what the tax breaks are for 1099 verses w-2.....the deductible expenses are about the same as far as I know. Your employer would have ar least 10% higher costs for you as w-2 employee.
Investor · Kingwood, TX · Member since 2016 · 43 posts · 14 votes
7y
@Wayne Brooks Yes my employer would face more expenses but I am certain he wouldn’t have an issue as he doesn’t want to lose me over a 10% cost increase.
That’s the easy part, for me my issue is do I slow my real estate goals or not.
Lender · Pensacola, FL · Member since 2017 · 658 posts · 626 votes
7y
@JoshMiller
You are asking a question that has been asked for decades by workers, employers, and the IRS. It boils down to what you want to do and whether the system will let you get away with it. The IRS gets a vote and it gets expensive for the employer if the IRS decision contradicts your choice. Since Congress has never passed legislation providing a bright line test between 1099 and W-2, the IRS uses fuzzy rules favoring W-2 over 1099 when they have doubts.
For example, if you want perceived freedom, choose 1099. You'll have to pay your own estimated taxes, including the self-employment payroll tax, but you may be able to deduct business expenses W-2 employees cannot deduct. You may be eligible for a Solo 401K plan (other threads on BiggerPockets discuss this topic). If you want perceived security, choose W-2. Your employer withholds your estimated taxes and pays the employer share of the payroll tax (what 1099s call the self-employment tax). You may or may not get employee benefits (I know W-2s who didn't when the job market slowed).
When I worked in Silicon Valley, 1099 was the dream choice by many entrepreneurial-minded workers. I compromised and became a W-2 employee of a temporary help agency. Although I didn't get the tax breaks 1099s got, there were other aspects of being a W-2 I enjoyed (such as being paid within a couple of weeks after turning in my signed timesheet -- my cashflow was steady and the agency dealt with the client's accounts payable department). When I applied for a HELOC, the bank treated me as a regular W-2. For some reason, banks seem to prefer W-2 people to 1099 self-employed people.
One thing you might not be able to do is flip flop back and forth between 1099 and W-2, at least with the same employer. Once I was hired by the agency as a W-2, I asked about doing some assignments on a 1099 (other people working through the agency were doing so). I was told I couldn't be reclassified as a 1099 because of the IRS rules.