If you receive a 1099MISC document in the mail, and there’s a dollar amount listed in box 7 for Non-employee compensation, the IRS treats that as self-employment income and you’re supposed to pay self-employment tax on that income. If you own your own business, that’s perfectly normal. By the way, I’ve got lots of blog posts and tax tips for self-employed folks on this web-site so be sure to check those out. I’ve got a list at the bottom.
But what if you’re not self employed? Really not self-employed. You’re stuck with a document that basically requires you to pay extra tax, what do you do?
First, only dollar amounts in box 7—count as non-employee compensation. If you received dollar amounts in box 1 for rents or box 3 “other income” you don’t have to worry about the extra self-employment tax. The rent goes on your Schedule E for rental income and the other goes on line 21 of your 1040.
But let’s get back to that non-employee compensation again. What did you do to earn that money? Is it in your field of work? If the answer is yes, then it’s going to count as self-employment income even if you don’t think of yourself as being self-employed.
I’m going to use my friend Rick as an example. He works for another tax company and he’s very good at what he does. Every year, Rick gets laid off on April 15th. My company stays open all year round and sometimes I’m super busy in September and October. I could probably use some extra help around then. If I hired Rick to help me with some tax returns, I’d give him a 1099MISC for the money I paid him and he’d have to report that as self employment income. Even though Rick normally works for another company, he’s still in the business of preparing taxes. The money I pay him for tax prep would definitely be considered self-employment income.
But let’s say I hire Rick to paint my office instead. Rick’s not a painter, he doesn’t do that as a business, he’s just helping me out because I need my office painted and I’m helping him out because he needs the money. We’re friends. Painting is not his line of work. So technically, he’s not self-employed and he shouldn’t have to pay self-employment tax on that income. It’s a one shot deal never to happen again. How do you account for that?
Well, it used to be that if you received a 1099MISC for non-employee compensation for under $1000 and you put that amount on line 21 of your 1040—the IRS would let that slide and not audit for self employment tax. But starting with 2013 tax returns, the IRS has announced that they will send notices to anyone with 1099MISC income (with non-employee compensation) on line 21 instead of putting it on a Schedule C—where it will be taxed with self-employment tax.
There’s no box to check or form to fill out with your 1040 to say, “Hey, I’m not self-employed! I shouldn’t have to pay self-employment tax!” So what do you do?
You’ve basically got two options:
One: Claim the income as business income and write off any and all expenses associated with the job. This is going to be the best choice for people who have expenses with a job like mileage or supplies.
Or, two: File your 1040, pay the self employment tax, and then file an amended return 1040X taking the income out of self employment and putting it on line 21 with the explanation that you are not self-employed and the income should not have been subject to self employment tax.
Why do this as an amendment instead of doing it that way the first time? Because the IRS has already announced that they are sending letters out to anyone who puts 1099MISC for non-employee compensation income on line 21. And they charge fines and penalties for underreporting your tax.
By filing and paying the self-employment tax first, then amending, you’re giving the IRS the opportunity to examine the situation and make a determination. You may win, you may lose. But if you win—the case is closed and they won’t come back at you. If you lose—it doesn’t matter. You already paid the tax and they can’t fault you. No harm, no foul.
Most people who receive a 1099MISC for non-employee compensation are going to be considered self-employed by IRS standards. You may as well file the schedule C with your tax return and pay the self-employment tax. If you think you might be an exception give us a call, we can help you sort out your options.
So i was sent a cp 2000. There was income classified as 1099 misc and my husband should have been a w2 employee. We didnt file the income but now have extra fees from the self employment tax. My husband was hired by a detailing company and he detailed cars for comission, but he was told when and what to do and was supplied all the tools. He no longer works at the company. I do not know what to do, or how to proceed. Any help you could give me i would really appreciate it.
Also I read “For example, if you run a landscaping company and a client reimburses you for the cost of seeds, you can’t claim seeds on your return.” So that means if I bought bamboo plants but was never reimbursed I could deduct those? Also should I ask for separate 1099s for each job category (1 for landscaping, 1 for cleaning, 1 for office admin) or they can be all grouped together?
I have been 1099-misc a few times so I am usually pretty good with deductions. Home Office, Mileage, Etc. However this year is a bit different as I fill multiple roles. Office Admin, Landscaping, Cleaning, Etc.. Can I write off the landscaping supplies? Such as I bought a mower, weed whacker, shed, trailer, etc? I have the receipts. I have a lot of receipts but this is the first time I have done multiple roles outside of office work for 1099-misc.
Also currently it looks like with my deductions/vehicle miles for business/office space I would owe $0 in taxes. It’s been like that every year (married, one kid, wife gets small 1099-misc and w2 so that helps.) But I have around $19,000+ in deductions/receipts. That is normal?
Work as a server/bartender on regular job and sometimes help a friend who is a photographer (setup, etc) He sent me a 1099 misc (I only made 1000) for the work I did. Do I pay self employment? How can I file this? Thanks
Hi! I’m trying to help my dad figure out this 1099Misc that he received. He is employed by Company A and received a W2, as normal. He also received a 1099 from another company B that pays him and fellow Co. A employees a bonus for keeping an eye on their property while they are at work, which happens to be held at Company A facilities. My dad doesn’t have a business, he doesn’t drive any additional miles to do this for Co. B, there’s no home office to use as expenses—-is there anything that can be done to lessen the blow of this 1099Misc income being a self employement issue? It’s causing a $1000 swing in his taxes due.
Hi, I have a 1099 question. Last year I was hired for a brief time by a company. I worked in an office environment for around two months. I only made $11/hr and was taxed on that money. I have all my pay stubs. I ended up moving out of state and now at tax time, I received a 1099 form in the mail that’s less then my grossed wages I actually earned, slightly less. Why didn’t I receive a w2? And will I have to pay double the taxes? I don’t know what to do. I contacted my old boss and his accountant said she mailed me a w2 and 1099, they gave no explanation on why I have a 1099.
Hi Maryanne,
you should read this post: http://robergtaxsolutions.com/2011/06/hiring-grandma-to-be-a-nanny/
Hi Amy G.,
I’ve just learned that a new rule makes that payment not taxable. I believe that your employer will have to amend that form. I just read about it last week so I know it’s a little late. But I would check it out with your employer. I believe that he should change your 1099.
Hi Sara,
Sometimes the online software doesn’t have as many options as we’d like, but honestly box one is for rental real estate–a van shouldn’t be on the list..
I would put the whole thing on your schedule C (which is where it belongs) and do the write offs from there. You might want some professional help since it sounds like the 1099 is messed you. You may want to depreciate the van, or claim mileage–a professional can help you make the best choice for your situation.
Hi Mike,
I don’t think you should have gotten a 1099misc with an amount in box 7. Maybe I don’t understand the whole situation, but that sounds like a moving expense reimbursement and that should have been on your W2 as a “non-taxable” fringe benefit. (At least in my opinion.)
I would fight the 1099misc – but if that doesn’t work, write off the moving expenses, that’s that that money was for anyway.
Hi Hana,
Yes, the 1099 will complicate your taxes. But, read what I just wrote to Cleatus the boat builder–change boat builder to Admin and do the same thing. Remember, you need that home office to deduct the mileage so make something work–even if it’s just a 3 x 4 square foot corner of an apartment. If you think something might qualify as a business expense–save the receipt.
One thing different about you from Cleatus is that your clothing won’t qualify as a write off. Whatever you wear to work will be considered something that you can wear outside of work (unless there’s a uniform involved.)
Don’t forget networking expenses–going out to lunch with other admins to learn the tricks of the trade. Job hunting meetings so you can get hired as an admin elsewhere because you’re “self employed.”
I figure, if you’re going to get a 1099 – you may as well take advantage of it.
Hi Cleatus,
You’ve described perfectly what I think is a big problem with 1099 “bonuses”. But here’s what you do.
First, remember that if you got that bonus as “payroll” they would have taken 7.65% out of it for your social security and medicare tax. So you would have gotten less. (That’s supposed to help–I know it doesn’t really, but it’s supposed to help anyway.)
Next, since this is “self-employment” you are allowed to deduct all of your expenses against that income. So–do you have a home office or tool shed? Someplace at home where you keep your boat building stuff? Yes? Good, then you’re going to deduct your home office.
Then, do you drive to the boat building place? Well, since you have a home office (you really do don’t you, right?) Then your mileage to the job now becomes deductible. (It’s not without the home office so you need that home office, not matter how tiny it is.)
Now, as a craftsman, what about your tools? Work clothes? Cleaning the work clothes? Magazines about boats?
Basically, what do you spend money on to make you a better boat builder?? You’re going to want to deduct all of it.
The bottom line is: you got paid for doing work so you do have to pay tax on it. I personally think it should have been as a wage, but if you’re going to get stuck with a 1099, you’re in a good position to turn this lemon into lemonade. As an employee, you probably would never have been able to claim all those expense deductions, but as a business “owner” well now you can.
Hi Jan Rosberg! I stumbled upon your blog while researching some questions I had regarding this past 2014 Tax Year. First I would like to thank you for all your input and info you have already given! Your answers were very informative and thorough, which led me to ask you about my tax situation and the BEST option to maximize my tax breaks! My wife and I were married this past year so we will be filing jointly for the first time. We also supported my wife’s sister this past year, while she lived with us. She was a full-time student at CSU NORTHRIDGE, while also working part-time. We supported more than %50 of her expenses. She received roughly $11000 in income as Hostess and Data Entry Specialist. She earned $3000 as a Hostess via W2, and $8222 via 1099-MISC under Non-Employee Comp Box 7. My dilemma is should my wife and I claim her and subsequent Tax Credits, which will increase our rebate… whilst having her file as Dependent? ( I have to MAXIMIZE her mileage, business expenses this way so she doesnt owe a hefty SE TAX ) Or should we not claim her, have her file her own taxes as Non Dependent? ( This way she gets Standard Deduction plus Eduacation Credit, while inputting in MINIMUM mileage, busness expenses she will receive roughly $300 rebate, whilst our rebate goes way down ) I want to achieve biggest tax break/rebate as possible without incurring audit! What is best way to proceed? Does she even have to file a Tax Return with such little income? Please any swift answers would be well appreciated Jan! Hope to hear from you via email or blog response! Thank you!
Hi,
My husband has a 1099-MISC (box 3 $3000) from a class action lawsuit from a job he had 10 years ago. The check was for unpaid overtime hours. We currently live in NV and we do not have state income taxes. The 1099 also came with a W-2 with state & federal taxes withheld.
I have been doing our taxes for the past 20 years and this has thrown me for a loop.
Help pls
I received a 1099-MISC for an egg donation to a fertility clinic. It’s on line 3 under “other income” I have a Full-time job and I’m in the 25% tax bracket. I understand that taxes have to be paid on this but I would expect them to be at 25% instead when I run it through turbo-tax it’s coming back as me owing 2,200 on those 5,000 dollars… because of self-employment taxes… is this considered self-employment? Even factoring FICA at 15.3% I still dont understand why I would owe close to 45%… is turbo tax right or should I be able to file this without being hit with a self-employment tax?
I received a 1099-MISC for my work as a Network Technician though I was an employee for the recruiting company that was under contract to Dell, who was under contract to Boeing…confusing, I know. I read on the IRS website, that : You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.
So Dell, Boeing and my recruiting company controlled the work that I performed, my schedule, where I was to work, when I could take time off, the tools that I used, etc. I was not working as self-employed. I was working as an employee to the recruiting company that was under contract.
Should I file an amended 1040X to see if I can reclaim the self employment taxes that I paid last year, as well as doing the same thing this year? Thank you.
Here is the situation with my 19 year old dependent son who is a full time college student. He began working for a church in 2013 assisting with facilities maintenance. They issued him a 2013 W-2. Then for some reason, in 2014 they began paying him a check for his hours rather than a paycheck with taxes taken out. They sent him a 1099-MISC with box 7 filled in for $4625.20. First is my son required to file since he is my dependent with that $4625.20 income level. If so, how do we report this income since he does not own a business? At this job, he was told what to do, how to do it, when to do it and always used the church’s equipment and supplies. Please help!
I rented my classic vehicle to film production for a week and received a 1099-misc. How do I report this on my 1040.
I am a grandmother and I care for my grandson full time. My daughter pays me to care for him. Do I need a W-2 or can we use a 1099-misc. If we can use the 1099-misc am I self employed?
Hello,
I am employed by a nonprofit and I receive a W2 each year from them. I also receive a 1099 MISC for an additional amount fr them that is disbursed each month as a health benefit, essentially as a reimbursement for paying for a private healthcare plan since they don’t offer a company plan. How do I report this? Just as a benefit?
Hi Jan,
I do contract work for a carpet cleaning business. I also lease out a van to them that I am still making payments on. They are deducting the mileage and the payments they are making to me. Can I deduct the payments that I make to the bank? I received a 1099-MISC with box 1 filled out. I’m trying to file on line with H & R block, when I try to report the amount in box 1 it does not have an option for vehicle rentals.
Thank you,
Sara
cash*
I got cad for keys as a tenant. i used the $6800 dollars the bank paid for moving expenses. can i write off any expenses that i had in order to move? the $6800 is in the non-employee compensation.
Hi Jan!
Firstly, you rock for responding to each and every one of these posts.
I work for a small business as an Admin Assistant that will grow to a large business in the coming months. When I was first hired, the owner said that I would be a 1099 and later switch to W2. I wasn’t really sure of the difference but didn’t mention it. I work M-F, 9-5, which is definitely a w2 employee. Wondering how this is going to complicate my life next year when I have to file taxes.
Please advise!
Hi! I am a boat fabricator that is employed by the company I work for. Since first starting for the company my wages per hr were reduced because my employer decided to do all payroll and workers comp through a staffing agency! He said that it cost him an additional $4 an hr on top of my wage to go through the staffing agency. To accommodate the cut in my wage and to keep him from having to pay more money to the staffing agency he would give a bonus for each boat completed and pay straight to me with cash. Last week he unexpectedly handed me a 1099 and when I asked what it was for he said that it was for the bonuses that had been paid out for the year. Now I didn’t say a thing as did not know anything about what a 1099 was even about. I had already completed my taxes (just hadn’t submitted them yet) and when I entered the 1099 all I seen was how I was going to have to file it as self employment! This dramatically effected my return and now have things on pause before I submit to see what my options are. I am defenitly not happy about the entire situation. I mean not only is my employer saving money by not going through the agency but he is not having to pay employer contribution tax as well. On top of that he is now trying to claim it as a deduction for himself with the 1099! Please any advice on my options would be greatly appreciated. I mean what good is a bonus if I don’t really get it in the end! Thank you in advance for any help.
Hi Shannon,
Wow, I’ve never heard of a server getting a 1099MISC. If anybody else reading this has, please post okay?
Well, you have two options. File your tax return and claim you expenses and be done with it. Or, file an SS8: http://www.irs.gov/pub/irs-pdf/fss8.pdf
If you file an SS8 though, you an pretty much assume that you’re going to get fired. It’s a tough call.
But hey, last year you just got paid under the table with no reporting your income at all–hmmm, so if you turn in your boss, he’ll probably turn you in too.
I know I sound really mean, sorry but you’re between a rock and a hard place.
And as much as I disapprove of him making a server be a 1099 contract laborer, at least he did warn you in advance. I realize you didn’t understand, but you should have asked questions
I’m thinking that you’re probably going to be looking for a new job no matter what you decided to do about the taxes.
Hi Charles,
My thought is that your company should pay your bonuses on a W2. But they’re not asking me. So, you’re stuck paying the self employment taxes on that money.
That said, you can write off all of your expenses you have in generating new clients for the business–like business lunches, mileage, your home office, entertaining potential clients, client gifts, etc.
Hi,
I have been working for a restaurant in the position as a server/shift manager for about two years. I do not view myself as a self employee. I am not under a contract. I have not filled out a W-9. Initially, the owner would give a hand-written check for a flat rate, which didn’t show on my last year W-2. Well, last year, the owner mentioned that I would receive a 1099 at the end of the year for the amount paid for management and that I needed to turn in deductions that would qualify. At the time, I didn’t fully understand what filing a 1099 meant and what effect it would have on my refund. Now that I am filing my 2014 taxes, my refund is substantially being affected by this 1099. Why am I receiving a 1099 if I am not self-employed and what is the best option for me for filing my taxes?
I’m employed with a company making a base salary and paid on a W2. I also receive a bonus if I hit certain performance marks, but I’m not selling anything. It’s based on the number of new clients brought in. The bonuses are being paid on a 1099, box 7 – non-employee compensation.
I get the bonuses through my regular course of business with the firm. Part of my job is bringing in new clients, and if I don’t make the mark, I don’t get a bonus, but I still get my regular salary. Thoughts?
Hi Makayla,
I think this post should help: http://robergtaxsolutions.com/2011/07/small-business-taxes-for-beginners-how-much-to-set-aside/
Hi,
A company recently offered me a temp to hire position for a duration of two months. I’d be a 1099 employee until the end of that 2 months at which time they’d bring me on permanently and switch me to W-2 or get rid of me. I’m having trouble figuring out if I would have to make an estimated tax payment in April or if I’d wait until the end of the year. I also wanted to know how to figure out how much taxes i would owe. I’d be making $20 an hour at around 40 hours a week. Any help is a appreciated.
Hi Jessie,
Here’s the thing–it sounds to me like you really are an employee, but your employer is trying to avoid payroll taxes. Or maybe he’s trying to avoid health insurance. Either way, what can you do?
If you turn him in, it seems to me that you would be out of a job. Why? Because, if you file the paperwork for him to get an employee audit, the IRS will give him your name. (I know, I’m working on one for a client and it says who filed the complaint right on the form the IRS gave him.)
Soooooooo—-How much do you like your job?
That said, maybe you and the other employees could show him how much he’d save by making you employees. That would start with a pay cut. WHAT? Yes, a pay cut. You see, if you’re making $20 an hour right now, he’d had to pay you $18.58 an hour to make up for what he’s going to have to pay for his employer’s share of payroll taxes.
Then, you’d have to show him how he’d save money getting you health insurance. I’m not being a smart aleck here, he actually could. You employees pay for your health insurance through payroll withholding, that doesn’t get taxed for Social Security and Medicare, it’s a win/win for both of you–sometimes. There’s other issues that could mess that all up, but it’s worth approaching.
On the other hand–maybe you’re better off as a sub-contractor. Sure, the payroll taxes stink, but you can write off all of your job expenses. Of course you have a home office–you’re a self employed contractor! Of course you write off your mileage to and from the office–because you have a home office so you’re commuting between two job sites, not commuting. And you get to write of your health insurance on the front of your 1040 instead of on the Schedule A where it probably doesn’t do you any good.
So–there are lots of advantages to being “self-employed” so you might want to weigh both sides before trying to force a change. You’re the perfect candidate to sit down with a tax professional and do some serious tax planning. You might find that you like your situation just fine and won’t want it to change.
I work for a company that placed all employees on a 1099 a couple years ago. We were on W9 and one day they came in and said it was being changed. We had to sign independent contractor agreements and everything. At the end of that year we got both a W2 and a 1099. Since then only a 1099. I feel as though something is not right about this. We are paying self employment taxes all though none of us are self employed. We work 40 hours, some of us are hourly, some are salary. We do not have benefits.
Hi Carl,
If the 1099 income is in box 3, then it’s not considered “earnings” for the purpose of making an IRA contribution. Sorry.
Hi Julia,
You’re the victim of one of my pet peeves. Sales people who should be getting a W2. But you didn’t. Now, you can file paperwork against the company, but then you won’t be working for them anymore. It’s also a tough sell when you’re looking for a new job.
“Why are you looking for work?” “Well I sued my old employer.” “Thank you, there’s the door.”
See what I mean.
So, you are self employed and you are going to pay self employment tax on all of your earnings.
One thing to look at, was your 1099 for just your wage or did they gross up to include the other things they paid for? I just was working with a man whose 1099 was grossed up so do check for that.
Also, what about your home office? If you are contract labor, you should have a place at home that you can work form, most “employers” don’t reimburse for that.
Sorry, but you will be stuck with self employment, not other income. That’s the way the IRS is going to make them do your 1099.
On the bright side, it’s better that they pay all of your expenses than having you pay them yourself.
I received income in 2014 as a result of a Chapter 11 reorganization plan. The income is payment for accrued vacation balance. I think it will be reported on 1099MISC Box 3.
Do you know if these funds are considered compensation for the purpose of IRA contributions?
Help!
I’m one of the unlucky individuals that the IRS believes to be self employed. I received a 1099 from who I thought was my employer.
I was in sales and paid only commission.
The company paid for my phone, internet, business cards, and all travel expenses.
Shouldn’t that count as “other income”rather than self employment?
Hope you can help.
Hi Elaine,
It might not seem like your son is self employed, but he’s earned $17,000 on the side from a business. The IRS counts that as self employment. Yes, the Google clicks weren’t related to his iOS job, but it still counts as work (easy work, but work nonetheless.)
Now, before paying that tax, he needs to make sure he deducts his expenses–not a lot I’m sure. But I’d claim his home office–since he can’t mangage his Pintarest account from his work office. And who know what other costs he’s got. But anything to reduce that $17,000 income mades sense to write off.
My son is a iOS developer for a large company. He got a W-2 from work. On the side at home, he made money from Google for ad-clicks on Pintarest (not work related at all). It was reported as non-employee comp. on a 1099-MISC. He made $17,000 doing no work at all. Why is this self-employment? He put it on line 21 and just got a letter from the IRS that he owes 3,000!
Hi Laurie,
I’m afraid that the IRS is going to consider that income as self-employment. My personal opinion is that if the company pays him with W2 income, then they should put the bonus on the W2 also. I don’t understand why a company doesn’t do that.
Now, you can fight it, and claim that it should be wages, but then I’m guessing that your husband will lose that job. So it’s probably not the best idea in the world.
So, file an amended return. Claim all sorts of expenses to write off. Don’t make stuff up, but claim every legitimate expense that you can. Sales people usually have mileage, business entertainment, phone, and home office expenses.
Most successful sales people don’t get away with writing off their employee business expenses because AMT (the alternative minimum tax) kicks in. By making your husband file as self-employed, the company is sort of giving him back his business expenses to claim. (Still not cool, his bonus should be wages, but I guess it’s a reason anyway.)
Don’t just pay what the IRS says you owe. Seriously, amend the return and deduct the expenses. You’ll be glad you did.
My husband is in sales and receives a base salary and commission. He sells items from different companies and one company gives bonuses throughout the year for selling certain items. These bonuses are reported on a 1099MISC. We received a CP2000 stating we owe additional taxes on this bonus amount due to being self-employed, which he is not. Are we obligated to pay this additional SE tax on his bonuses from this company?
Hi Diane,
Your lease payments should be deducted from the income and only the net income should affect your social security payments, not the gross.
My husband worked as independant contractor-transporting wheelchair patients. He also had to lease the wheelchair van for $700 a month. The 1099 shows an elevated non employee compensation because it does not show the lease payments that he had to make himself. Then they gave us a slip of paper saying our lease amount was rounded equals $18,000. I have to deduct the lease payments as business expense, is the elevated non-employee compensation that shows affecting how much tax I now have to pay on my social security disability income? It says taxes on my social security is based on income-is it gross or after all the lease adjustments?
If yes its affecting it-what options if any exist
He is a W2 employee and only gets one 1099 from a differerent company. He works out of his office and his home office about 50/50. The 1099 is not a significant amount of his business, just about 5-10% usually. I always thought that we should have someone else do our taxes because we could be missing out on additional deductions. You are so helpful.
Hi Susan,
Oh yes, you bet he can deduct those referral fees! Now, what else can he deduct there?
Lots of questions here: does he get paid as a statutory employee from the insurance company or is he a W2 employee? So is this 1099 the only one he gets? Is it a significant amount of his business because we can really go to town on deductions here. Or not. It depends upon the situation.
You just don’t want to leave any money on the table for the IRS that they shouldn’t have. (Sorry, I saw insurance sales and all the deductions just started flying through my head.)
My husband is in Insurance sales and gets a 1099MISC from a separate ins. company (not his employer) and then has to turn around and pay his employer referral fees out of that amount. Is he able to list the referral fees he pays to his employer as a deduction business expense since it is the same line of work? Thank you very much.
Hi Mary Anne,
Really? He gave you a 1099 for that? Oh well.
Yes, deduct your gas and electric. Also, you want to deduct any mortgage you paid or rent you paid on the apartment as well.
But–let me just rant and rave for a minute okay? Was the vet using the apartment as a place for him to live? Or was he using your apartment as a business location. Because if he was just living there, then I think giving you a 1099 was pretty slimey. That’s not a business expense and he’s writing it off as a business expense.
Now, if the Vet clinic is housing him and paying for the apartment because he’s from out of town or something like that–that’s okay. That makes perfect sense. But if he owns the clinic and is just using you for a business deduction, that boils my blood.
Also, since it’s for rent–the rent income had better be in box 3 and not in box 7 (box seven is non-employee compensation and you’d get hit with self employment taxes.) Box 3 is for rent.
You’re going to want to report the income on Schedule E–and claim every deduction your entitled to. If you own the apartment, you should also be able to claim depreciation. You might even have a nice loss to show on your tax return. Then–you can show the loss from your tax return to the Vet clinic and ask for a raise to cover your expenses. (Sorry, you getting a 1099 for that brought out my catty side.)
I rented my apartment to a Dr. at the Vet clinic I work for. I received a 1099 form. Can I deduct electricity and gas?
Thanks Brian,
You’re so right about inexperienced tax preparers and self-preparers reporting those amounts incorrectly. It often takes the IRS two to three years to get around to sending out those audit notices, and by then–the taxpayer has forgotten many of the details associated with the income and misses out on claiming the expense deductions that they could have claimed had they filed correctly in the first place.
I often see reporting of 1099 amounts on Line 21 (thus evading self-employment tax) for returns prepared by taxpayers themselves or by inexperienced tax preparers. With the IRS taking aggressive action against this, perhaps more taxpayers will avoid problems by relying upon Enrolled Agent tax experts. Also, Enrolled Agents can properly advise individuals who are truly misclassified workers. The amendment process you recommend for claiming status as an employee with a missing W-2 is excellent advice.