There are important nuances to filing your taxes as a board director, as tax treatment can vary depending on the specifics of your role and compensation. Board directors are considered to be independent contractors, rather than employees, who receive wages or a salary. Therefore, the IRS requires board directors to report their income on Form 1099-MISC in Box 7, as nonemployee compensation, as part of filing their Schedule C/Form 1040, rather than completing a W-2.
Working for a company as a director and as an employee necessitates that income received as an employee is reported on Form W-2, although it is possible to receive both a Form 1099-MISC and a W-2, for which you may need to complete a W-4 to withhold federal and state taxes on your W-2.
Because companies do not withhold federal income, Social Security or Medicare taxes from their board directors’ incomes, the directors are solely responsible for additional taxes they may owe, including self-employment tax, comprised of Social Security and Medicare. You may deduct half of your self-employment tax as an adjustment to income.
Serving as an independent contractor means deducting ordinary and necessary expenses of maintaining your business services. Activities such as traveling away from home to fulfill your appointment duties incur hotel costs and meal expenses, which can be deducted and aren’t subject to any limitations based on your income. Investment expenses, however, are considered miscellaneous itemized deductions and are only deductible by the amount that they exceed 2% of your adjusted gross income.
Self-employed individuals can make deductible contributions of up to 25% of qualifying income to a pension or profit-sharing plan, known as a Keogh plan. This plan makes it possible for board directors to postpone paying tax on their income.
There are several other benefits that board directors can enjoy during tax season. HSA contributions are included in your reported income on Form 1099-MISC but can be deducted from your income tax returns. Premium payments to term life insurance made by your company on your behalf are reported on Form 1099-MISC and fall under self-employment tax. BOLI policies mean avoiding taxation of the life insurance death benefit.
The above information is general in nature and should not be considered to be legal, tax, accounting, consulting or any other professional advice. In all cases, you should consult with professional advisors, familiar with your particular factual situation, for advice concerning specific matters before making any decisions.