W-2 vs 1099: What Creators and Freelancers Need to Know About Taxes
If you’re working in Los Angeles as a freelancer, independent contractor, or creative professional, understanding the difference between a W-2 and a 1099 is crucial for managing your taxes and maximizing deductions. Whether you’re a YouTuber, TikToker, Shopify store owner, or work in online commerce, this guide will help you make smarter tax decisions.
1. W-2: Employee Income
Who receives it: Employees of a company
Employment type: Regular employee
Taxes:
- Employer withholds income tax, Social Security, and Medicare from your paycheck.
- Employer pays a portion of Social Security and Medicare taxes.
Form usage: Shows total wages earned and taxes already paid throughout the year.
Benefits: Employees often receive health insurance, retirement contributions, and paid leave.
Example: You work for a CPA firm as a staff accountant. Your employer takes taxes out of your paycheck and issues a W-2 at the end of the year.
2. 1099-NEC: Independent Contractor Income
Who receives it: Freelancers or independent contractors
Employment type: Self-employed
Taxes:
- No taxes are withheld by the payer.
- You pay self-employment taxes (both employee and employer portions of Social Security and Medicare, 15.3% total).
- Quarterly estimated tax payments are usually required.
Form usage: Shows payments made to you, but not taxes paid—because you handle that yourself.
Benefits: No employer benefits; you manage your own insurance, retirement, and other contributions.
Example: You do freelance bookkeeping for a business. They pay you $10,000 in a year and issue a 1099-NEC. You pay your own taxes on that income.
Key Differences at a Glance
| Feature | W-2 Employee | 1099 Contractor/Freelancer |
| Who pays taxes | Employer withholds & remits | You pay yourself (self-employment) |
| Benefits | Often included | None, you provide your own |
| Payroll deductions | Income tax, Social Security, Medicare | None |
| Estimated taxes needed | No | Yes, usually quarterly |
| Job control | Employer controls work hours & tasks | You control your schedule & methods |
Quick tip: If you receive a W-2, taxes are partially handled for you. If you get a 1099, you need to be proactive about saving and may benefit from business deductions to reduce taxable income.
Business Expenses You Can Deduct (1099 Income)
As a self-employed professional, you can deduct ordinary and necessary expenses. Examples:
| Category | Examples |
| Home office | Portion of rent/mortgage, utilities, internet, office furniture, equipment |
| Equipment & supplies | Computers, software, tools, pens, paper |
| Travel & vehicle | Mileage, gas, tolls, parking for business purposes |
| Professional services | Accounting, legal fees, bookkeeping |
| Marketing & advertising | Website, social media ads, business cards |
| Education & training | Courses, certifications, workshops |
| Insurance | Business liability or professional insurance |
Note: W-2 employees generally cannot deduct most of these expenses.
Self-Employment Tax
As a 1099 worker, you pay both employee and employer portions of Social Security and Medicare (15.3%). Good news: You can deduct half of your self-employment tax from your taxable income.
Retirement Savings
- Independent contractors can contribute to SEP IRAs, Solo 401(k)s, or SIMPLE IRAs to lower taxable income.
- W-2 employees can contribute too, but limits and employer matches differ.
Estimated Taxes
- Since no taxes are withheld, quarterly estimated tax payments are required.
- Properly deducting business expenses helps reduce these payments and avoid penalties.
Top 1099 Deductions Checklist
- Home Office: Rent/mortgage, utilities, office furniture, equipment
- Equipment & Supplies: Computers, tablets, phones, software subscriptions, office supplies
- Vehicle & Travel: Mileage logs, gas, tolls, parking, airfare, hotels, meals for business
- Professional Services: Accounting, legal fees, tax prep
- Marketing & Advertising: Website, social media ads, business cards
- Education & Training: Courses, workshops, certifications, books
- Insurance: Liability or business insurance
- Retirement Contributions: SEP IRA, Solo 401(k), SIMPLE IRA
- Health Insurance: Premiums for self, spouse, dependents (if not eligible for employer coverage)
- Other Expenses: Bank fees, software subscriptions, professional memberships
Pro tip: Keep all receipts, invoices, and mileage logs—IRS may request proof. Accounting software like QuickBooks makes this easier.
Bottom Line
A 1099 gives you more control over deductions and ways to reduce taxable income, but also requires responsibility: track expenses carefully, pay taxes on time, and keep organized records. W-2 income is simpler, but offers fewer opportunities for deductions. Understanding the differences is key for YouTubers, Shopify store owners, online commerce businesses, filmmakers, dentists, TikTokers, and high-net-worth individuals.
Contact Us
For more information about our tax planning services visit our website.
Velin & Associates, Inc
8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.