Many taxpayers earn income both as employees and independent contractors in the same year. While common, this situation creates unique tax challenges that require careful planning.
Why Mixed Income Is More Complex
W-2 income includes tax withholding, while 1099 income does not. This often results in:
- Underpayment of taxes
- Unexpected balances owed
- Possible penalties
Understanding Your Tax Obligations
With mixed income, you are responsible for:
- Reporting all income accurately
- Paying self-employment tax on 1099 earnings
- Making estimated payments if needed
Deducting Expenses for 1099 Income
Independent contractor income allows deductions for legitimate business expenses, including:
- Mileage and vehicle use
- Equipment and supplies
- Internet and phone usage
- Professional services
Proper documentation is essential.
Avoiding Underpayment Penalties
If withholding from W-2 income does not cover taxes owed on 1099 income, estimated quarterly payments may be required.
Planning Ahead Saves Money
Balancing withholding, deductions, and estimated payments prevents surprises and reduces penalty risk. Professional tax planning is especially valuable in mixed-income situations.