Sch C or Line 21 and SE Tax

[Patrick Michael]

Client helped out a friend who owns a one man manufacturing business. Client put part A into part B, worked out his own home, set his own hours and was paid by the piece so I believe he should be classified as a subcontractor and not an employee of the friend.  He was paid about $2,000 and the friend will be issuing a 1099.  I'm thinking of putting the income on line 21 since he is not in the trade or business of assembling parts (has a regular full time job) and the activity is not regular and continuous.  After some research I could not find anything definitive whether or not it should it be subject to SE Tax.

What do you think?

Thanks in advance for all replies.

[JohnH]

You might want to take a look at the  "Batok" decision to gain some guidance. But if he comes back next year with another 1099 form the same company, you might find yourself scratching your head a bit.   http://www.bradfordtaxinstitute.com/Endnotes/TC_Memo_1992-727.pdf

 

 

[Jack from Ohio]

Agree with JohnH.  If there is any chance he will do the work for them again, add SE.  Use Schedule C-EZ for simplicity.

[jklcpa]

Form C-EZ and schedule SE.

[RitaB]

I would put in on Sch C or Sch C-EZ.  It is income from work.  Just like if he worked at McDonald's for a week or a month, never worked there before, and never will again.  He would not get a refund of SS/MC tax.  We never think anything about short stints with employers; I don't think we should with subcontractors working, either.  I think the spirit of the law, so to speak, for line 21 is really "other" income, like awards, cancellation of debt, etc.  You know, where there was no work.

Edited November 3, 2015 by RitaB

[Jack from Ohio]

Form C-EZ and schedule SE.

When I open Form C-EZ and input income, Schedule SE is automatically opened and populated.

RitaB is right on the mark again!!

Edited November 3, 2015 by Jack from Ohio

[Abby Normal]

I have to disagree. I would not subject him to SE tax based on it being a sporadic activity.

[mcb39]

I have to disagree. I would not subject him to SE tax based on it being a sporadic activity.

I believe that there is some guidance as to whether it is reported in box 3 (other income) or box 7 (non-employee compensation).   I have done it both ways depending on the circumstances.

[Abby Normal]

I believe that there is some guidance as to whether it is reported in box 3 (other income) or box 7 (non-employee compensation).   I have done it both ways depending on the circumstances.

Yes. We do 1099s for directors of a local community theater and always put the stipend in box 3. The stipend is 750 but some directors ask to only be paid 599 so they won't receive a 1099. All of them have day jobs or are retired and usually only direct a play every couple of years or so. And many of them use the stipend on things for the play or cast anyway.

[Possi]

Sch C or C-ez. Trust Rita! She's right!

[Randall]

Yes. We do 1099s for directors of a local community theater and always put the stipend in box 3. The stipend is 750 but some directors ask to only be paid 599 so they won't receive a 1099. All of them have day jobs or are retired and usually only direct a play every couple of years or so. And many of them use the stipend on things for the play or cast anyway.

I believe the $600 amount is only for the issuer of the 1099.  The recipient of less than $600 is still required to claim it as income.  Ha!

[RitaB]

I believe the $600 amount is only for the issuer of the 1099.  The recipient of less than $600 is still required to claim it as income.  Ha!

Absolutely correct.  I would have no income from tax prep if the first $599 from each payer was not income.

Edited November 5, 2015 by RitaB

[JohnH]

What? 

You're saying I have to report each tax prep fee even if it's under $600? 

But don't I get to deduct the value of my time from what I report?

[RitaB]

What? 

You're saying I have to report each tax prep fee even if it's under $600? 

But don't I get to deduct the value of my time from what I report?

Yes, plus you also get to deduct the difference between what you COULD have charged and what you DID charge.  Just like the guys with empty rentals do.  And the gals with hair do overs do.

[JohnH]

Oh, OK.

That is such a relief !

[GeneInAlabama]

I like this new math.  Maybe I'll stay in the tax business after all.

[RitaB]

I like this new math.  Maybe I'll stay in the tax business after all.

I just hope nobody takes our advice.  We all forgot to (s).

[JohnH]

Maybe we do need a really special sarcasm emoji

[kcjenkins]

Yes. We do 1099s for directors of a local community theater and always put the stipend in box 3. The stipend is 750 but some directors ask to only be paid 599 so they won't receive a 1099. All of them have day jobs or are retired and usually only direct a play every couple of years or so. And many of them use the stipend on things for the play or cast anyway.

Well, while the PAYER has a $600 threshold, the RECIPIENT has a $400 threshold for SE tax, remember.  

Unless this truly is a one-time activity never at all likely to be repeated, I'd put it on the C-EZ because while it might not be his PRIMARY business, it clearly was "work, for compensation" and thus is "self-employment income".  

[GeneInAlabama]

>>And many of them use the stipend on things for the play or cast anyway.<<

And if it is on schedule C they can probably deduct these items.

 

 

[mcb39]

On ‎11‎/‎4‎/‎2015‎ ‎3‎:‎07‎:‎15‎, jmdaviscpa said:

Yes. We do 1099s for directors of a local community theater and always put the stipend in box 3. The stipend is 750 but some directors ask to only be paid 599 so they won't receive a 1099. All of them have day jobs or are retired and usually only direct a play every couple of years or so. And many of them use the stipend on things for the play or cast anyway.

Just returned from a 3 day tax seminars.  Teachers addressed this issue and flatly stated that if it is in box 3, it goes on line 21; if it is in box 7, it goes on C or F.

[Jack from Ohio]

4 hours ago, mcb39 said:

Just returned from a 3 day tax seminars.  Teachers addressed this issue and flatly stated that if it is in box 3, it goes on line 21; if it is in box 7, it goes on C or F.

This has been the IRS position for decades.

[michaelmars]

13 hours ago, mcb39 said:

Just returned from a 3 day tax seminars.  Teachers addressed this issue and flatly stated that if it is in box 3, it goes on line 21; if it is in box 7, it goes on C or F.

then I guess those "teachers" are assuming that the 1099's are prepared correctly.  Remember, they are being prepared by those same people here that disagree on how the income should be reported, so why assume that the 1099's are correct.  I do 100 of buildings and I can't tell you how many times I get 1099's with the rent reported in box 3 or 7.  Even errors on 1099's prepared by big institutions like Hospitals and even some local municipalities.

 

[Catherine]

5 hours ago, michaelmars said:

then I guess those "teachers" are assuming that the 1099's are prepared correctly.  Remember, they are being prepared by those same people here that disagree on how the income should be reported, so why assume that the 1099's are correct.  I do 100 of buildings and I can't tell you how many times I get 1099's with the rent reported in box 3 or 7.  Even errors on 1099's prepared by big institutions like Hospitals and even some local municipalities.

 

That mirrors my experience.  Box 3, Box 7, Box 6... I have seen ALL of those used for one client for whom the work is all the same and definitely SE work.  I have seen honoraria of less than $150 reported in Box 7 when it was clearly NOT SE work (and under the $600 threshold).  All manner of nonsense on these forms where many are clearly prepared by people who have no idea what they are doing; they've just been told "send these out."  So while what @mcb39 and @Jack from Ohio state may well be the official IRS position, it does not absolve us from firing up the old neurons and seeing if the information presented to us is good - or garbage.  GIGO, after all. 

[Jack from Ohio]

How successful has anyone here been at getting companies to correct 1099 forms?  If they don't know how to do it to begin with, how do you get them to correct them.

We have about 2% success with getting them changed.