My daughter worked as an independent contractor for a business doing Henna tattoos at the state fair last year. Her income was $860 over a 4 day period. She did not get a 1099 from the business she contracted with and her efforts to contact them have not been successful.
She is not finding a way to report the income using an online free service. I’ve found a couple references on how to approach this, but nothing I’ve found is very clear or comprehensive.
One reference was to use Schedule C (1040), but the link to that form https://www.irs.gov/forms-pubs/about-schedule-c-form-1040 states “Use Schedule C (Form 1040) to report income or loss from a business you operated or a profession you practiced as a sole proprietor”. This doesn’t seem relevant to her situation.
The other reference suggests to use Schedule SE which, per the description seems more appropriate. But reading through that it requires references from multiple other schedules and forms (schedule F, K-1, C, etc etc).
Is there an easy, or at least straight forward way to do this that someone can suggest?
I once had a similar situation, where a contracting firm had gone out of business & failed to send 1099’s. My tax guy said the same as the IRS cite you gave: use Schedule C (or C-ez) and include a letter of explanation.
This is where she would report her income. In fact, if she had a 1099-MISC and was using Turbotax, this is where Turbotax would put it. Working at a tattoo parlor is her profession which she practiced as a sole proprietor.
You do not need a 1099 in order to report this income. The IRS does not require you to have a 1099 in order to report income. Just look for someplace in the tax program where it asks for “additional income not reported on a 1099” or something similar. Or look for a place where it lets you enter gross income on Schedule C. If it asks for your business name, do not use the name of the tattoo parlor, just use her own name and address – as a contractor she is the business.
She will also need to file Schedule SE to calculate the self-employment tax. The tax program should take care of this automatically.
And do not attempt to use the “free” versions of Turbotax, H&R Block, or any of the other major companies (unless you go through the link on the IRS Free File site). If you don’t use the IRS Free File site, when you get to the end (after you have spent a couple hours typing everything in), it will tell you “Sorry you don’t qualify for our free offer. But you can upgrade to Turbotax Super-Premium Small Business for just $xxx.”
This may not be relevant but you don’t mention your daughter’s age and employment situation. So, on the off chance that perhaps she is young and this part time gig was her only income, then I’d say she shouldn’t bother reporting it at all. Failure to file penalty is based on tax due and unpaid, which might be zero.
If this is just additional income then the other suggestions above are correct.
She might not owe income tax, but she almost certainly owes self-employment taxes. Those are the taxes for Social Security and Medicare. As a self-employed person, she owes double what a normal employee owes, because she has to pay both the employer and employee share.
Plus there are state taxes to consider, too. Did you know that in Pennsylvania you owe tax and have to file if you have $33 in annual income?
Whether she owes SE tax is debatable… in fact if I was preparing her tax return I would treat it as other income and almost certainly not report it as SE income. Don’t use Schedule C.
If your position is that she should not have been treated as a contractor, then she needs to file Form 8919 and SS-8 with her Form 1040 and pay the employee’s share of FICA.
It’s generally true that you only owe self-employment tax if you are operating a trade or business. But there’s no real bright line on what constitutes a trade or business, only guidelines, and the link above has its own interpretation of the guidelines. A good example of what is not a trade or business is being a Nielsen household, which my household was for a couple years recently. We didn’t make enough to get a 1099, but since I’m a stickler for rules and was the tax preparer for the household, it was on everyone’s tax return as “other income”. Anyway, while what you’re doing there is very regular, there’s no sense involved that you’re running a business, even if people are compensating you for your time and aggravation. We didn’t seek out this money making opportunity and had no say on how long we could conduct it. Nielsen contacted us, gave us the equipment, and sent us checks for 2 years, then asked for it back and stopped sending checks.
However, if you are a contract worker for a business, and you answer their call for labor because you want to make money, while it’s true that the business could stop giving you work, you could always try to find another business that needed contract workers. As long as you were doing it at all regularly, which can pretty much mean you did it more than once and could continue to do it if so desired, you’re operating a very low-key sole proprietorship. The trade or business of providing casual labor may not be the most business-y business, but it is a business if you’re doing it for profit and are not anyone’s employee. If you’re just doing it to help a guy out and he happens to pay you for your efforts, then sure, not a business. But if the point of it was to make money and you even contemplated doing it more than once, I would say you fall into the category that should be hit with self-employment tax, because it’s really the same as the payroll tax any other worker who gets hired to do a job. Can you try to argue as the guy did in that link that in certain situations where it was two irregular occurrences and not something regular at all? Sure, that’s possible, and if at each time you didn’t intend it to go on regularly, you’d be right. But the more that it happens, the less likely that you didn’t intend to do it regularly.
As to the topic of the thread, I would have to know more to be sure. It would cost you more to hire an expert than it would save you, so try to use the guidelines provided here to determine whether you should consider it as being from a business.
Bumping this thread instead of starting a new one:
I’m in a situation very similar to the OP’s daughter. I earned about $21,000 last year as a freelance digital transcriber for various clients online. I didn’t even have a business, or a company name, or corporation or whatever, it was entirely just myself operating as a person. I already paid $4,000 in estimated taxes last year.
Do I fill out Schedule C on a 1040? I wasn’t even issued a 1099 by my clients.
Yes, the legal requirement is to claim your gross income regardless of what forms you were issued, offset it by all costs necessary to run the business, and pay self-employment tax on the net amount. You do this on Schedule C. You do not need a named business, or LLC, or anything like that, and any business licensing requirements are between you and your city/state, not the IRS.