next »

[jboolo]

I received a 1099-MISC form for income received from a professor who had solicited my assistance in helping edit a book she is writing. The income I received is recorded in box #7. This means I have to pay self-employment taxes, increasing my tax burden more than it would be had she deducted payroll taxes and filed a W-2 for me. My tax refund is now reduced by approximately half of what it would be had she filed a W-2. As a graduate student, this is quite a reduction.

First, is this the proper way for her to have filed the income I received? Was I not supposed to be notified that I would be responsible for self-employment taxes (i.e. paying all social security taxes myself) beforehand? I was led to believe that there were no changes to how I was being paid nor to my tax obligations.

Second, if I have to file as if I am self-employed, what are the thoughts of those of you with experience in this area with respect to claiming mileage a home office deduction?

I only worked for her for two months. I realize that in order to claim a home office deduction the space, equipment, supplies, etc. have to be entirely devoted to the business you operate. Given that it was only two months and I no longer do this kind of work (mainly for this reason), if I were to be audited, the home office would not longer exist because the business doesn't exist. In all honesty, the space was used solely for that purpose during those two months, but I'm not sure that an auditor would buy that given that the office also has a treadmill and a sewing machine in it. Of course, being able to claim these deductions means a reduction in my tax burden (still not equivalent to what it would have been had she filed a W-2, but a reduction nonetheless).

Any words of wisdom regarding any portion of this situation?

Thanks in advance for the help.

[zharkov]

The 1099 makes sense to me since you were, as informally called, a consultant, not a regular employee.  There are a set of guidelines, but if you are working from home, setting your own hours, using your own computer, say, then you are a consultant.

Claiming your office, and perhaps mileage, and maybe other stuff, might work; read the IRS regs for using the office 1/6 of a year.

Wild guess, you will end up claiming a couple of hundreds bucks for this office.  They won't sent someone to visit you to make sure you didn't exercise in the same room for a 200 deduction.  Now if it was 20,000 .....

[clean]

There are lots of things you can deduct as a consultant.
DO you have a phone & cell phone?  Expense one as a business expense.

Mileage for professional activities.

Did you go to a conference?  deduct the non reimbursed costs (including 1/2 of what you paid for food) and all of the lodging.

You will only pay taxes on the profit your business makes.

Im confused about part of this situation.  WERE you in fact a consultant?  Did they control HOW you did the job in any way?  Control the hours or the place it was done?  IF they did, then you were an employee.

After that, then we are only talking about around 15% of the profit as taxes.  IF 15% of the profit is 1/2 your refund, then you are not getting much of a refund anyway, or you made a boatload of money editing (and should be happy to keep 85% of a boatload).

For what its worth.

[jailbird]

Deduct whatever you want and don't worry about getting audited.

[sirrah]

I had this situation happen one year I had a fellowship.  My accountant had to contact the university and have them re-issue the 1099.  It took several phone calls to get the right person but they eventually changed it.

[n8vtnn]

I've read before that home office deductions are highly-scrutinized by the IRS.  Because of that, I deduct office expenses, but not the actual home office deduction.  In addition to some of the deductions already mentioned, you might also include:

any work-related books you have purchased
Videos/DVDs/Live events you've purchased or attended (professional development)
office supplies & postage
computer equipment/peripherals
office equipment
internet access

[govtauditor]

The 1099 is the correct method for reporting this.  You were a consultant, and were paid a fee for your services. That being said, you are responsible for your federal and state(if applicable) income taxes.  Social security taxes are taxes on wages for employees, not fees for consultants or independent contractors.  Dont worry about the SS, you dont owe that.

[bewildered]

The 1099 is the correct method for reporting this.  You were a consultant, and were paid a fee for your services. That being said, you are responsible for your federal and state(if applicable) income taxes.  Social security taxes are taxes on wages for employees, not fees for consultants or independent contractors.  Dont worry about the SS, you dont owe that.

?? Why not pay self-employment tax?

[aristotelian]

Sounds correct to me.  You earned income, you owe taxes on it.
You should report it, as well as any legitimate deductions you may have had.

[voxprincipalis]

The 1099 is the correct method for reporting this.  You were a consultant, and were paid a fee for your services. That being said, you are responsible for your federal and state(if applicable) income taxes.  Social security taxes are taxes on wages for employees, not fees for consultants or independent contractors.  Dont worry about the SS, you dont owe that.

?? Why not pay self-employment tax?

Did I miss something? Govtauditor is not saying not to pay self-employment tax. He/she is saying that Social Security taxes are not included in the taxes for which the OP is responsible.

Yes, the 1099 is the proper form, and you should expect to pay taxes on any money you make without receiving any special notification. The professor is not a business owner, and you are not her regular employee, so a W2 would be inappropriate. (Also, you probably [?] did not fill out a W4 and I9 before starting work with her, but maybe I'm wrong?)

Also, I'm with clean -- I can't imagine that your SE tax is so great as to diminish your refund by 50%, unless your refund is minuscule, in which case it's not worth worrying about. As a musician, I pay SE tax every year and it is never all that much.

VP

[bewildered]

The SE tax includes the Social Security tax, right?  That's what I was assuming in my previous post, but I may be out of date as I've not filed SE tax for 4 years, and these things do change.

[zharkov]

The 1099 is the correct method for reporting this.  You were a consultant, and were paid a fee for your services. That being said, you are responsible for your federal and state(if applicable) income taxes.  Social security taxes are taxes on wages for employees, not fees for consultants or independent contractors.  Dont worry about the SS, you dont owe that.

?? Why not pay self-employment tax?

Did I miss something? Govtauditor is not saying not to pay self-employment tax. He/she is saying that Social Security taxes are not included in the taxes for which the OP is responsible.

Per the IRS:

What is Self-Employment Tax?

Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most wage earners.

You figure SE tax yourself using Schedule SE (Form 1040). Social security and Medicare taxes of most wage earners are figured by their employers. Also you can deduct half of your SE tax in figuring your adjusted gross income. Wage earners cannot deduct social security and Medicare taxes.

See

http://www.irs.gov/businesses/small/article/0,,id=98846,00.html

[dr_crankypants]

Well, have you used the schedule C to do this?  It may seem strange to claim as a business, the 1099 sometimes forces you to do that.  The good news is that the amount you were paid is reduced by the amount that you spent (only your profit), and you can deduct things on schedule C (even without itemizing other deductions). If you spent almost nothing, this doesn't help.  But this can, especially if there was travel involved.

[voxprincipalis]

Sorry, I was extremely unclear; I blame the lack of coffee. Yes, that is what it means -- on a W2 you will see a special section for taxes that have been taken out for Social Security. This separate figuring of Social Security is not necessary for self-employment tax. Paying the self-employment tax as dictated by the IRS includes all of the various categories for which the OP is responsible. I read govtauditor to be saying that a separate pay-in to Social Security is not necessary; the regular SE tax covers all that needs to be covered.

Thanks for the clarification, zharkov.

VP

[govtauditor]

The 1099 is the correct method for reporting this.  You were a consultant, and were paid a fee for your services. That being said, you are responsible for your federal and state(if applicable) income taxes.  Social security taxes are taxes on wages for employees, not fees for consultants or independent contractors.  Dont worry about the SS, you dont owe that.

?? Why not pay self-employment tax?

Did I miss something? Govtauditor is not saying not to pay self-employment tax. He/she is saying that Social Security taxes are not included in the taxes for which the OP is responsible.

Per the IRS:

What is Self-Employment Tax?

Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most wage earners.

You figure SE tax yourself using Schedule SE (Form 1040). Social security and Medicare taxes of most wage earners are figured by their employers. Also you can deduct half of your SE tax in figuring your adjusted gross income. Wage earners cannot deduct social security and Medicare taxes.

See

http://www.irs.gov/businesses/small/article/0,,id=98846,00.html

One thing left out here is that this was a one time, very limited engagement.  There is no business here, no ongoing effort to further the expansion of a consulting service.  As such, SE taxes are probably not warranted.  That said, if OP is going to get into deducting office expenses, etc. OP could be opening self to being construed as a "business" or other "going concern", in which case the SE tax could be applicable.  My guess is you got the 1099 so the professor could deduct you as an expense on their tax return.

My advice, for what it is worth: Unless you were going to deduct the home office anyway (it doesnt sound like this is the case), report the income, forget the office expenses, pay your income taxes, dont worry about SE.  For a one time, limited engagement like this, the SE is really NA.