Tax question- 1099-misc income

OK, I am working on my taxes and everything is going along swimmingly, but this 1099 has me stumped. My husband worked a bit with a contractor friend of his and earned $X, as reported to the IRS with a 1099 Misc Inc form. His amount appears in line 7 of the form.

I’m trying to use Turbo Tax and Taxact. Actually, I used Turbotax first and was rechecking in Taxact. I’m just not quite sure what this income is. He doesn’t legally own his own business, it’s just some sporadic work he did for a friend helping him out with some construction. But whenever I enter the amount in, the software starts prompting me about what the name of his business is (my husbands), profit and loss of the business, blah blah. Look, he doesn’t OWN a businiess, he just did some work!

Is there something I’m missing? Did he get the wrong form maybe? Or because he performed this work is he considered (by the IRS) to be a business owner?

I promise I’ll take any answers with a grain of salt and won’t rely on it as legal advice, but it seems like this is something that probably comes up all the time and someone must know. I tried the IRS.gov site but couldn’t find the info I needed there. Weird.

I just logged on to Turbo Tax to check it out. I’m not doing too much because I don’t want to screw up my own return but…
When I say that I received a 1099-MISC it asks me for a payer name (that would be the person who sent it), an optional account number, and then all the different box amounts (amount paid, any taxes withheld, etc.)

Are you getting prompted for that AFTER you enter this information? Because I’m not going to enter anything to try it on mine, but I don’t see anything weird on the form as-is.

I’m pretty sure he got the right form. If you’re not actually an employee, your income should indeed be reported on a 1099. I think the Misc one is the one, too. There are other types of 1099s for other stuff - mortgage interest, dividend income, etc. I believe the one year I worked as a contractor that’s the one I received.

Ah, I just decided to plug one in for $100 and not save it. Once I put in the dollars, Turbo Tax asks me what kind of income it is. Whether it’s self-employed business income, farming income, something about Alaska, or other income. Did you maybe check the self-employed box?

Standard Disclaimers apply.

When you work as an independent subcontractor*, the problem is that you don’t have any of the usual “earnings stuff” deducted (FICA/FUTA/SUTA) etc. It may be that there is some minimum threshold before that stuff would apply for him, but you’ll want to check somehow. Maybe you can call the Turbotax people. I don’t know if you can just claim it as “misc income” (which it is), or whether the IRS wants you to also now owe some small “extra” taxes.

You might try entering in one of the tax softwares again and see about entering minimal business info. I think I did something like this last year, although my personal situation was a bit more complicated.
*This is one of the reasons you can receive a 1099, and seems to be the case for your hubby.

Jesus. Aaand, one last time.

I checked the “other income” box and it did not prompt me for anything further. Try that?

I would say that because he worked as an independent contractor, with income reported on a 1099, it is treated like he has a business. He will have to do a schedule C (or C-EZ) for business income and pay Self-Employment taxes on it. He will, however, be able to deduct all legitimate business expenses that he incurred in conection with earning this independent contratctor income.

Putting it as other income would not be recommended.

This IRS Booklet (pdf file) has some detailed information about what is required. You may also want to see a tax professional.

When I put that amount in on line 7 of the 1099 Misc, it gives the options of:

Self Employed Business Income

Farm Income

or

Wage Income

From the help menu, it says:

"Sources of Nonemployee Compensation Income

Self-Employed Business Income: Choose this if you earned income from:

  • self-employment

  • consulting

  • freelance work

  • working as a sole proprietor or business owner

  • serving as a company director

You may be considered to have self-employed business income if you received a 1099-MISC showing an amount earned in box 5, Fishing Boat proceeds; box 6, Medical Payments; box 7, Nonemployee Compensation or box 14, Gross Proceeds Paid to an Attorney.

Farm Income: <snip>

Wage Income: Amounts that should be treated as wages. You must pay your portion of Social Security and Medicare taxes on this income."

When I chose Wage Income, it says:

Report as wages: we will report this nonemployee compensation as wages on your return.
Because you must pay social security and medicaid taxes on these wages, your return will include form 4137, social security and medicare tax on unreported tip income.
Um…OK? WTF? Bear in mind, this is a small amount of money- a few thousand dollars, not a huge yearly wage earnings. I don’t see a better choice then this one, as he’s not a business owner.

Here’s the part that gets me about filing a schedule C:

It says in the tax book-

"Use Schedule C to report income or loss from a business you operated or a profession you practiced as a sole proprieter. Also, use Schedule C to report wages and expenses you had as a statutory employee. An activity qualifies as a business if your primary purpose for engageing in the activity is for income or profit AND you are involved in the activity with continuity and regularity. Fro example, a sporadic activity or hobby does not qualify as a busiiness. To report income from a non business activity, see the instructions for Form 1040, line 21.
Several issues. First off, it IS sporadic and not a regular income producing job. So it doesn’t qualify as a business. BUT when you go to the instructions for line 21, it says:

blah blah blah: “Also, do not report on line 21 any nonemployee compensation shown on Form 1099 Misc. Instead, see the chart on page 15 to find out where to report that income”

And of course the chart on page 15 shows (for line 7, where the income is reported) Schedule C, C-EZ, or F (that’s a new one) But if you were not self-employed, see the instructions for for 1099 Misc (which takes me right back where I was a minute ago)

And the IRS wonders why people don’t file their taxes? What a pain in the balls! All he did was help a friend out with a bit of construction, and it’s this big confusing clusterfuck.

Good grief. Once Billdo chimed in with his post, I somehow suspected the easiest way wouldn’t be the correct one.

I got a degree in accounting and took 2 semesters of tax classes - that was pretty much enough for me to know that unless one works in it every day, there’s no way to keep up on all the peculiarities.

Good luck.

IANATaxConsultant, but had this sort of arrangement in connection with my ex-boss’s consulting company:

He is, though, from the IRS’s perspective. If he worked without deductions being taken out, doing construction work under an “independent contractor” arrangement for your contractor friend, he’s a business of his own. His “business name” is his own name, unless he chooses to make one up (and register it with the authorities, if that’s required), his EIN is his SSAN, and he fills out a Schedule C and pays half of “self-employment tax” (actually he fills in the full amount and takes a credit for half of it – you can see where on the 1040 form). He should take intelligent deductions (e.g., driving his vehicle to work for this guy becomes a legitimate business expense; any tools, equipment, or supplies he bought and was not reimbursed for by the contractor are deductible expenses; etc.). You can drive down the Schedule C net income figure substantially while staying strictly honest by thinking through how the expenses categories fit. (Obviously I’m not going to suggest that you pad it; that would be illegal.)

Yes it does. A the IRS considers anything that brings in income other than wages, interest, or dividends, etc., as a business. It doesn’t matter if you’re doing it full time. You use the Schedule C to report income you received from working that you did not get a W-2 form for. That includes 1099 income, and any other income you earn, whether you get a 1099 for it or not.

My writing income is sporadic, and I don’t often get 1099s, but it is income and is put on the Schedule C.

But your husband IS self-employed – as a part time independent contractor.

You are confusing “employment” with “full-time employment.” If you take on any job that doesn’t pay a regular salary, your income and expenses go on the Schedule C. (Schedule C-EZ is just a simplified version of that, BTW). Similarly, you’re confusing “business income” with “full-time business income.”

Of course, the great thing about Schedule C is that you can deduct any legitimate business expenses. Any equipment, ads, professional dues, postage, etc. are all legitimate deductions if you can show that they were necessary to do the job.

[Tax preparer hat on]

Polycarp and the Chuckster are generally correct. This income should be reported on a Schedule C (or C-EZ, the program should automatically choose the right form). Regular income tax, plus [if it is high enough to meet the threshold (just a little over $400 net profit, if I remember correctly)], also a double-dose of Social Security/Medicare tax. Again, the program will be calculating all this for you.

As mentioned before, expenses associated with this income may be deducted on the Schedule C, and this includes mileage. (NB: if you take mileage the program will likely ask you all kinds of whacky questions about your car; yes, you need to answer them).

Also as mentioned before, with very few exceptions (none of which apply to you, Zette, from the way you described your situation), this income should not be reported as regular old "other income… the IRS will catch on and come after you for the SS/Medicare taxes.

[Tax preparer hat off]

I do some stuff on the side that goes the same way – it counts as self employ income (and only a few thousand, like your husband’s situation, NOT my major source of income), and yes, you need to do the Schedule C. In the Tax Act (or TurboTax) software, it will prompt you for all the needed things – some of it’s a little harder to figure out in Tax Act, more vaguely phrased.

Many of those questions will be irrelevant to your situation (farm subsidies and such). But it’s basically freelance or independent contracting work. Just put his name under “Business Name”. I’ve filled this stuff out with that software (I’ve used both) for the last few years, so I could probably dig up last year’s files and see what I answered if you’re getting stuck on part of it.

Hey, thanks to y’all- I figured I had to list it as a business, but the quote about if it’s only a sporadic thing and not a regular job is right from the IRS booklet, which is why I thought maybe there was some other category that I was missing. I have no problem paying the taxes, but they sure make it clear as mud as to how you’re supposed to classify this stuff.

thanks again!

Gee, thanks. I know that in real life I’m known for making the simple things complicated, but I didn’t realize that folks on the board knew my ways so well. :wink: