Hiboglossi
The Most Depressing Person
It is true that you can reduce your tax liability quite a bit if you are savvy about which deductions to take, especially if you hire an accountant who has experience with pilot or independent contractor deductions. However, you will probably still be paying at least as much as you would as a W-2 employee when you consider that you will be paying twice the normal rate for Social Security and Medicare taxes. This is because traditionally the employer and employee each pay half of the Social Security/Medicare Tax, but as a contractor you are responsible for all of it. Another issue is that, if you do take all the deductions you are eligible for, you increase your chances of being audited by the IRS (although at AA you would not make enough to be truly likely to be audited, nor have I heard of any AA pilot being audited). One issue specifically at Air America is that the company does not distinguish between Per Diem and Flight Fees on the 1099 form, so you must include the Per Diem as part of your income, and at Air America, it is a substantial part of your income. As a W-2 employee Per Diem is usually not taxable.
Another issue with being an independent contractor, especially as a pilot or another relatively dangerous job, is that you bear quite a bit of the liability an employer traditionally bears. Per the Air America contract, pilots are responsible for any damage to or caused by their aircraft, although the company does at least have insurance on the aircraft. Last fall an AA pilot landed an Aztec gear-up, and the company docked his pay $5,000 to cover the deductible on their insurance. As bad as that is, if the company hadn't had insurance, he would still have been legally responsible as an independent contractor and would likely have been financially ruined for life unless he had his own insurance.
In my opinion, the drawbacks of being an independent contractor greatly outweigh any benefits.
