Another tax question (1099-MISC) (1 Viewer)

[gwballin]

Thanks for the answer - that's what I thought. Oh well, so much for that deduction.

On the 1099, it's non-employee compensation b/c it was services rendered to the business and she'll need pay SE tax on it. I don't see how it could be misc. income.

The right answer is that the payment should be reported as nonemployee compensation.

However, even if you were to mistakenly report it in box 3 as other income, it is the responsibility of the recipient to know what the income is for and report it accordingly. Put another way, income reported in box 3 is not excluded from self employment taxes just because it was reported in box 3.

 

[superchuck500]

The 1099 is due to the recipient by January 31 but the copy provided to the IRS and the 1096 are not due until February 28.

I would tend to agree with you that since it is a relative, if the 1099 is a little late it likely won't be an issue.

Yeah, my primary concern is just to be on the up-and-up in the event of an audit (for either one of us).

 

[superchuck500]

The right answer is that the payment should be reported as nonemployee compensation.

However, even if you were to mistakenly report it in box 3 as other income, it is the responsibility of the recipient to know what the income is for and report it accordingly. Put another way, income reported in box 3 is not excluded from self employment taxes just because it was reported in box 3.

Yes, that makes sense. It is was it is, not what you call it.

 

[CajunSaint]

The 1099 is due to the recipient by January 31 but the copy provided to the IRS and the 1096 are not due until February 28.

I would tend to agree with you that since it is a relative, if the 1099 is a little late it likely won't be an issue.

I know that is why i said 1099.

Yes, that makes sense. It is was it is, not what you call it.

You say that, but try explaining to the IRS that box 7 income is NOT self employed income.

 

[superchuck500]

You say that, but try explaining to the IRS that box 7 income is NOT self employed income.

Ha! Indeed.

You seem to be suggesting that it's more nuanced than it appears to me. If the LLC pays her for consulting services, she renders those services for fee - and the LLC deducts the payments as a business expense (as paid to a third-party non-employee for services) ... what would be the scenario where that isn't non-employee income in box 7 of the 1099 and not subject to SE tax for her?

Seems pretty clear to me, but I'm no tax pro.

 

[CajunSaint]

Ha! Indeed.

You seem to be suggesting that it's more nuanced than it appears to me. If the LLC pays her for consulting services, she renders those services for fee - and the LLC deducts the payments as a business expense (as paid to a third-party non-employee for services) ... what would be the scenario where that isn't non-employee income in box 7 of the 1099 and not subject to SE tax for her?

Seems pretty clear to me, but I'm no tax pro.

I am making this more of an issue than it probably is, i realize that. I am just making a discussion mostly for discussion's sake.

Again, i dont know all the details and in the details it may not even matter...ie, she is running through her own business. In which case, clearly box 7.

But in the above, i would agree if she is actually conducting business and paying paid by you, then yes box 7.

Only reason i brought up box 3 is because she is a family member and for all i know, you were just giving her money for the sake of giving her money or she was in an "honorary" type position.

I guess i am also making the point, this stuff sometimes isnt as simple as it may appear. I mean afterall, you would hate to see people go to the Notary Shoppe in Wal-mart to get legal advice, wouldnt ya?

 

[gwballin]

Ha! Indeed.

You seem to be suggesting that it's more nuanced than it appears to me. If the LLC pays her for consulting services, she renders those services for fee - and the LLC deducts the payments as a business expense (as paid to a third-party non-employee for services) ... what would be the scenario where that isn't non-employee income in box 7 of the 1099 and not subject to SE tax for her?

Seems pretty clear to me, but I'm no tax pro.

If it is determined that she is not actually self employed but rather conducting a hobby the income would not be subject to self employment tax, even if reported as nonemployee compensation for example.

 

[superchuck500]

I guess i am also making the point, this stuff sometimes isnt as simple as it may appear. I mean afterall, you would hate to see people go to the Notary Shoppe in Wal-mart to get legal advice, wouldnt ya?

I hear ya - and it's a fair point. Though the risk of poor or incomplete advice is always on the client. If they think they're getting what they need at Wal-Mart, then fine - and for some very basic things, they might be.

But it isn't our problem as professionals when the consumer elects for a cut rate service provider or a do-it-yourself approach. They're the party with the risk and it's their decision, no matter how ill-advised.

For the more sensible among us, we need to be adept at knowing when the risk/issue is one that is better suited for true professionals. And prudence demands a conservative approach.

But I'm just not going to pay somebody to fill out a 1099 in this situation. The SE tax issue is for her, not me.