Planning for Couples with 1099 Income

Meet Dana and Mike. She’s a nurse practitioner juggling two jobs, one W-2 and one 1099. He’s a full-time police officer with a growing side business structured as an LLC. Together, they’re raising two teenagers, working long hours, and making good money. But when tax season hits, it often feels like they’re working for the IRS.

Let’s break down how families like Dana and Mike can approach their next phase with more clarity—and tax efficiency.

Understanding Their Income Mix

• Dana earns $60,000 as a W-2 employee at a hospital and $80,000 as an independent contractor through a staffing agency.
• Mike earns $100,000 as a W-2 police officer and $50,000 through his LLC, which provides security consulting services.

Combined, they bring in $290,000 annually, but roughly $130,000 of that comes from 1099 income—which opens the door to strategic deductions and retirement contributions.

RITE Framework in Action

Risk: They need liability protection and proper insurance for Dana’s clinical work and Mike’s consulting. Structuring contracts correctly and maintaining adequate business liability and umbrella coverage are critical.

Investments: Their side income gives them the flexibility to fund tax-advantaged retirement accounts beyond what’s offered through work.

Taxation: This is where the opportunity lies. Many 1099 earners leave valuable deductions and deferrals on the table.

Estate: With two children approaching adulthood, updating estate documents and exploring educational gifting strategies should be part of the bigger picture.

Tax Deductions for 1099 Income

Here are just a few of the deductible business expenses Dana and Mike could be tracking:

• Home office expenses: If they use a dedicated space for consulting or telehealth work.
• Phone and internet: A percentage of their monthly bills related to business use.
• Professional liability insurance: Essential for both of their side hustles.
• Mileage and travel: For client visits, off-site work, or industry events.
• Supplies and equipment: Laptops, software, uniforms, medical devices—if used for the 1099 role.
• Continuing education and licensing fees
• Marketing and business development: Website costs, logo design, or even networking events.
• Self-employment taxes: While not deductible against income, 50% of SE tax is deductible when calculating AGI.

Retirement Plans to Reduce Taxable Income

1099 income creates opportunities that W-2 jobs often don’t. Here are a few strategies Dana and Mike could consider:

1. SEP IRA

• Contribution limit: Up to 20% of net self-employment income, capped at $69,000 in 2024.
• Good fit: For those wanting simplicity and high contribution potential.
• Consideration: No Roth option and limited catch-up for those over 50.

2. Solo 401(k)

• Contribution limit: Employee deferral of $23,000 (or $30,500 if over 50), plus employer profit-sharing up to the $69,000 total cap.
• Great fit: When both spouses have 1099 income and want Roth features or loan provisions.
• Bonus: Can be paired with a backdoor Roth IRA strategy.

3. Traditional IRA or Roth IRA

• Contribution limit: $7,000 per person (if over age 50).
• Backdoor Roth: Especially relevant if income exceeds direct Roth contribution limits.

With proper coordination, Dana and Mike could potentially shelter over $100,000 of combined income through pre-tax or Roth contributions—significantly reducing their taxable income while saving for the future.

These examples are for illustrative purposes only and do not represent actual client experiences. Individual results will vary based on personal financial circumstances and tax laws.

About the Author – Stu Caplan

Stu Caplan is Senior Wealth Strategist at Members’ Wealth, a boutique wealth management firm that offers a comprehensive approach to serving individuals, families, business owners, and institutions.

The firm’s goal is to preserve and grow its clients’ wealth to endure over time, while thoughtfully evolving its strategy to suit an ever-changing world. With over 20 years of industry experience, Stu and the Members' Wealth team thrive on bringing clarity and confidence to clients' unique situations.

Stu received his MBA from The Robert H. Smith School of Business at the University of Maryland and his bachelor’s degree from the Eller College of Management at the University of Arizona. Stu resides in Bucks County, PA with his wife and two sons. He’s an avid golfer and is thrilled that his boys have embraced the game. He also volunteers his time as a board member of the PKD Foundation and Abrams Hebrew Academy.

To get in touch with the Members’ Wealth team today, I invite you to email info@memberswealthllc.com or call (267) 367-5453. 

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