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Jean   Murray

Reporting 1099 Income - You ARE a Small Business If...

By December 14, 2008

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Many people do work for others and don't realize they are actually a small business. But the IRS considers you a small business and you must file a business tax return and pay taxes on your business income. Who am I talking about? Well....You are a "small business" if:

  • You did work for someone (not as an employee) in 2008 and you will be receiving a 1099-MISC form showing the amount you were paid for this work.
  • You did some freelance writing or computer work this year and you were paid for it
  • You had a side job in addition to your full-time work, like Avon, Tupperware, jewelry sales, Pampered Chef, or other similar work.
Business Tax Forms 1099

If you received $600 or more in income from someone for work you did during 2008, and you did not do this work as an employee, you will receive a 1099-MISC from that person. But even if you worked for someone and didn't receive a 1099-MISC, because you didn't receive $600 in payment, you must still report the income.

In the cases above, you are considered a sole proprietor, unless you specifically have registered with your state as another type of business entity (like a limited liability company). As a sole proprietorship, you will need to fill out a Schedule C showing all of the income you received from your work this year. The Schedule C profit is reported on your personal tax return (Form 1040), along with other income you or your spouse received. AND you must pay Self-employment Tax (FICA/Medicare) on the profits from your self-employed income.

The good news is that you may also deduct any expenses you incurred in order to do this work, including advertising expenses, auto expenses, and legal and professional fees. (For a complete list of business deductions, see my article on Business Tax Deductions A-Z).

You will need records to prove your expenditures, but they can be used to offset the income you received. For example, if you received $3,000 in income from your side job as a home sales person for Avon, you can deduct your expenses for traveling to home parties and for delivering merchandise. This can reduce your profit and your tax obligation. The more legitimate expenses you can find, the lower your taxes and self-employment taxes, so it's time to get busy and find those receipts.

Comments
December 22, 2008 at 2:58 pm
(1) Jerry says:

I am an independent contractor in the Insurance IT industry. I have to travel out of state 95-100% of the time, and I get reimbursed for travel expenses. I get various “helpful” advice about the pros and cons of forming an LLC for myself. While I am interested in saving taxes (who isn’t?), I am not sure what advantages forming such a company would privide to me.

Can you help me make a determination?

December 22, 2008 at 9:57 pm
(2) biztaxlaw says:

Good question, Jerry. If you are in business by yourself, there is probably little difference in being a sole proprietor or a single-member LLC, for tax purposes. Both are taxed using Schedule C on your 1040. The difference would be in liability, but if you’re not selling products to someone, and you can pay your bills, there’s probably little difference there too. I will put this question in the forum and see if anyone else has a comment.

January 28, 2009 at 12:14 am
(3) dshj says:

So I’m part of an LLC, not a single-member LLC. One of our clients asked for our FIEN for a 1099, and I’m confused about this request. If it’s business to business, is a 1099 required? Over the course of the year, the majority of payments were for services performed, but the total needs to be broken out by employee that worked for the client. That’s my job for my LLC, not for the client to perform. That leaves some confusion on my part, because I didn’t think my clients had to fill out a 1099 for work that is performed by my company. Why else become an LLC and not just an independent contractor?

January 29, 2009 at 11:32 am
(4) Jayne says:

I do bookkeeping for an LLC real estate company. I am preparing 1099′s. Obviously our agents get 1099s. I am confused about other businesses that receive them. Do we send them out to the magazines and billboard companies we advertise in?

February 9, 2009 at 8:18 pm
(5) John W says:

Do LLC’s get 1099s’?

February 9, 2009 at 8:34 pm
(6) biztaxlaw says:

Another good question. I’m set up as an LLC and some of the people I do work for send me 1099s and some don’t.

The 1099 instructions are pretty clear that you don’t have to give a 1099 to a corporation but they don’t say anything about LLC’s.

April 29, 2009 at 12:30 pm
(7) James says:

Looks like Jean doesn’t know the meaning of INCOME, and doesn’t know the difference between Income and mere payments of money.

Most of you folks don’t earn INCOME. You simply receive money or receipts for services rendered.

Folks need to learn the difference between taxpayers and Non-taxpayers.

Most of you are in fact Non-taxpayer with respect to chapter 24, of subtitle C, of Title 26 of the IRS code.

Remember W-2′s, 1099′s type of information returns are not just ‘amounts’ – it is characterization of money – it is declaring that you were paid ‘earned income’ – it is saying that the money is ‘wages or INCOME’ paid to an ‘employee’ for performing ‘service’ which constitutes ‘employment.’ It is alleging you were paid by the United States, D.C., State/territory or an agency thereof, a ‘trade or business’, or a ‘domestic/U.S. corporation’ (which is one which is owned or directly controlled by the gov’t. and they can elect/appoint the company officers as they see fit).

Skilful use of Form 4852 to correct these frivolous information returns will free you from the tax liability that corresponds to those information returns.

Not reporting what is NOT ‘income’ is not the same as ‘excluding’ or ‘reducing’ income as the IRS likes to allege is a ‘frivolous position.’ If it wasn’t ‘income’ to start with, it still isn’t, even though a third party falsely declared it to be income. It was just money for work.

The IR code has custom meanings for words like “Income, Wages, employee, employment, trade or business, and many others.

Webster’s dictionary and the common meaning of these words are not the same as the IR code meaning. They are very different.

Learning the difference will save you thousands of dollars.

Discover the fascinating truth about taxation in America.

http://www.losthorizons.com/Cracking_the_Code.htm

February 1, 2012 at 1:11 pm
(8) Terusa says:

This blog apaeprs to get a large ammount of visitors. How do you promote it? It gives a nice individual twist on things. I guess having something authentic or substantial to post about is the most important factor.

April 11, 2012 at 1:43 pm
(9) arbonne nutriminc re9 says:

Wow, fantastic blog format! How lengthy have you ever been running a blog for? you make running a blog look easy. The total look of your website is great, as smartly as the content material!

May 20, 2012 at 5:39 pm
(10) Rob Summers, Arbonne Consultant says:

I’m really inspired with your writing skills and also with the format for your weblog. Is that this a paid topic or did you customize it your self? Either way keep up the nice high quality writing, it is uncommon to look a great weblog like this one these days..

September 28, 2012 at 6:09 am
(11) guest says:

This may not be the correct place to ask the question. If there is any other place that this issue was discussed, pls direct me to that page.

Question: 1. Supplier A is doing business with XX PLC and he is 1099able. So, the invoice is created for supplier A. Even though supplier A is still in business, he has some issue with his payment to his creditor (i.e. invoice still goes to supplier A), and the payment needs to be done to supplier B. In this case, according to IRS, to whom we should recognize the income? To supplier B or to supplier A?
2. where has IRS discussed this matter?

September 28, 2012 at 9:17 am
(12) biztaxlaw says:

This is too confusing to answer, but it sounds like an accounting issue, not one for the IRS.

October 19, 2012 at 1:23 pm
(13) Sireri73 says:

Hi Jean and All,
As an independent contractor and bought a license software and then i would like to change my status to LLC (the next month because i got another contract job) can I put all my deduction (specially that software and laptop to support my job) or transfer all the expense from previous status to the LLC ?
Note: this situation in the same year
Really appreciated your answer, thank you

October 21, 2012 at 8:59 am
(14) biztaxlaw says:

I think what you are asking is whether you can deduct expenses for your business before you officially became an LLC. The answer is yes, you can. As long as they are legitimate business expenses, any expenses in the year when you became an LLC can be deducted. Check with your tax preparer on how to file (that is, what form to use). If you are a single-member LLC, you would use Schedule C, the same as if you were a sole proprietor.

January 19, 2013 at 5:14 pm
(15) Rebecca says:

I am planning on starting a ballet studio but I don’t project it will make more than $10,000 gross a year, can I still be a sole proprietor and file just a schedule C? Is there a dollar amount cut off for the IRS? Thank you.

February 22, 2013 at 8:00 pm
(16) Ginny Gerrish says:

I signed up to sell Pampered Chef in January of 2012. I spent several months setting up my business and practicing recipes for shows. I had a relative get sick and had to stop my business. I had no income. Can I claim any of the expenses?

February 4, 2014 at 5:04 pm
(17) Pam says:

I have a sole member LLC. I contracted with a Non-Profit last year to do some work for them. I have already recorded the services on QuickBooks as service income. Now they sent me a 1099-MISC form for $495.00. How do I report this on taxes, so I am not reporting income twice?

February 6, 2014 at 3:03 pm
(18) biztaxlaw says:

I have 1099-MISC income and file my business taxes using Schedule C (same as what you would file for a sole member LLC). Using tax software, the 1099-MISC income is included in my Schedule C income, so there’s no need to file the 1099-MISC amount separately. I had to enter “Gross Receipts” as “0″ then the 1099-MISC income. If your gross receipts include income other than from a 1099-MISC, enter the other income in Gross Receipts. Is this all clear? Keep the 1099-MISC to verify that you are reporting the same amount as the 1099-MISC; you don’t have to file the 1099-MISC with your tax return.

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