QBI or not

[Terry D EA]

Client gave me a 1099NEC with 21k income. He clearly is not operating a business. Claims he does welding and fabricating. All sounds as though he should have been a W-2 employee. Because welding and fab is a "Trade" does he still qualify for the QBI? I put the 1099NEC on Sch C. There are no expenses. The program is generating QBI correctly if he truly qualifies. He also qualified for a small amount of EIC. I'm just uncomfortable doing this when I know full well this in not a business venture. Opinions please.

[Pacun]

Does he have any tax liability? Since he has EIC QBI might make 0 difference on the return.

[Lion EA]

It doesn't sound like a hobby. If your client thinks he should be an employee, there are things you and he can do. But if he wants to continue working as is, then Schedule C. It also doesn't sound like he's in a Specified Service Trade or Business:

https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-provision-11011-section-199a-qualified-business-income-deduction-faqs

Q5. What is a qualified trade or business?

A5. A qualified trade or business is any section 162 trade or business, with three exceptions:

A trade or business conducted by a C corporation.

The trade or business of performing services as an employee.

For taxpayers with taxable income that exceeds the threshold amount, specified service trades or businesses (SSTBs). An SSTB is a trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, investing and investment management, trading or dealing in certain assets, or any trade or business where the principal asset is the reputation or skill of one or more of its employees or owners. The principal asset of a trade or business is the reputation or skill of its employees or owners if the trade or business consists of the receipt of income from endorsing products or services, the use of an individual's image, likeness, voice, or other symbols associated with the individual's identity, or appearances at events or on radio, television, or other media formats.

The SSTB exception does not apply for taxpayers with taxable income at or below the threshold amount and is phased in for taxpayers with taxable income within the phase-in range. For taxpayers with taxable income above the phase-in range, no deduction is permitted with respect to any SSTB.

[Lee B]

Schedule C & QBI unless he's receiving his payments from one prior W 2 employer, then QBI may be out.

No expenses, so he doesn't have his own tools or buy any supplies?

[Terry D EA]

7 minutes ago, cbslee said:

Schedule C & QBI unless he's receiving his payments from one prior W 2 employer, then QBI may be out.

No expenses, so he doesn't have his own tools or buy any supplies?

No on his own tools and when I asked about supplies he said he did buy some things but did not keep receipts and doesn't know how much he spent. I want to be real careful here. This person is a relative of another client (closely related). The other client pays for everything including the tax due so it is no big deal to this guy. There is a lot of additional detail I cannot give and I have to keep my personal convictions out of this and just prepare the return by the tax code. I did advise I would research further into the QBI which is a 1400 deduction and the guy was not concerned about the difference. Of course not, he's not paying for it. The more questions I ask the more he doesn't seem to care, shruggs his shoulders and says it is what it is. 

[Gail in Virginia]

I would be cautious about a schedule c with no expenses, even though he had spent some money he did not keep receipts for, if this does generate EIC as someone mentioned earlier.  If he has enough other income that EIC is not an issue, then I would be less concerned about the lack of expenses.

[Lee B]

I have filed a Schedule C for 3 or 4 years now with no expenses. The client is a full time caregiver with no W 2. No problems.

Due to her husband's income - no EIC

[Terry D EA]

I'm just going to go with the return as it is and stop worrying about it. Yes, there is a small amount of EIC which does bother me. But I can't find anything stating you have to have expenses for self-employed income to qualify for EIC. If the IRS questions it, then so be it. I've done my research and have too many other returns to do so it's time to move on.

[Gail in Virginia]

17 hours ago, Terry D EA said:

I'm just going to go with the return as it is and stop worrying about it. Yes, there is a small amount of EIC which does bother me. But I can't find anything stating you have to have expenses for self-employed income to qualify for EIC. If the IRS questions it, then so be it. I've done my research and have too many other returns to do so it's time to move on.

You don't have to have expenses.  If there aren't any, fine.  My concern would be the due diligence question asking if you prepared a complete and accurate schedule C.  Especially if the amount of the income is low enough that adding expenses would reduce his EIC and he TOLD you he had some expenses but no receipts.   

[mcbreck]

Expenses aren't deductible if you can't prove their validity.

[Yardley CPA]

It sounds like you've done your due diligence.  Make notations of the conversations you've had with the client, prepare the Schedule C and move on.  What move can you do besides telling the client to take their return somewhere else?