Why do I have to file a Schedule C....

[OMGWhatHaveIdone]

this year when I didn't have to do it last year?

I received my 1099's this year, and when I was in taxslayer, I noticed that I now have to file a schedule C. I don't understand why. I had 1099's last year and didn't have to do it that way.

I've pretty much stopped trying to further work on my return because after sitting here for three hours trying to figure that out, I gave up.

I also can't take the EIC because I took it last year? I don't get that either.

This is the first year that I'm really stumped on things. I've never had a problem filing my own return, but this year... wow... I feel stupid.

[admin]

Disclaimer - I'm not a tax professional.

What kind of 1099s did you get? If you received some for work you did, you need to file a Schedule C to report this income. It's kind of like having a sole proprietorship. The good news is that you can deduct expenses incurred doing this work.

If they are 1099-DIVs, not sure. Someone else jump in?

[OMGWhatHaveIdone]

Disclaimer - I'm not a tax professional.

What kind of 1099s did you get? If you received some for work you did, you need to file a Schedule C to report this income. It's kind of like having a sole proprietorship. The good news is that you can deduct expenses incurred doing this work.

If they are 1099-DIVs, not sure. Someone else jump in?

It's just like the one I received for work done in 2007. The amount is in box 7 for Nonemployee compensation.

I don't have any expenses that I incur because the company has provided everything for me, except for my computer. I received paid training and have never paid out a dime to them for anything. They even provided me with a very nice headset for me to use for work. All work is done on my computer. If I send a fax, all I have to do is click a button. The fax is generated back to the home office, where it is sent out from. I can even process payments on my computer that get sent back to the home office. I don't touch one piece of documentation, other than the paper I write my own notes on.

I've been wrestling with this for quite some time as to whether or not the company is violating something by calling us "Independent Contractors". I know there are certain factors to be considered in order to distinguish the difference between that and an employee.

My gut feeling is that we "should" be employees based on the fact that we have to:

1. answer to a supervisor
   
2. perform work using their computer program
   
3. perform specific work, under their "guidebook"
   
4. perform all work every day, or we get a deduction for each "case" that is left neglected (not called on).
   
5. We were required to sign contracts prior to the start of our work.

Additionally, the guidebook states that "full-time" contractors earn vacation days. Normally, if I need to take a day off, they will have someone else work on my cases for me. The cost for this person is deducted from my check. If I use a vacation day, I don't have to pay this. We are provided with free Skype accounts that we use to make our calls on. There have been instances that we have actually been called employees. One such case is when they send us expensive chocolate for Christmas each year, accompanied by a note thanking the "employees" for our hard work and dedication.

Also, there is room for advancement. In other words, based on my performance and time with the company, I could be promoted to a supervisor, which at that point, I will have people that would answer to me. And I would assist them as they encountered issues.

I'm really thinking that we should, by all means, be considered as employees. But, they have so many people working for them in different states and even in different countries, that maybe they just don't have the manpower to keep up with all the tax rules and laws and don't feel like dealing with it, so they call us IC's to get out of that. I don't want to rock the boat and potentially end up losing my job. I need this job as it enables me to stay home and work. There aren't too many other options out there for someone in my position so I have to take what I can get.

What do you think? Should I be considered as an employee or no?

[willingtocope]

None other than Microsoft got burned by this exact thing a few years ago. They wound up paying back employer portions of some taxes plus settlements to the people who were involved.

You're on the right track. There are like 19 or 21 questions that the IRS uses to distinquish an employee from an independent contractor....say "yes" to any of them, and you're an employee.

This isn't something you can fight on your own...you're going to need a lawyer familiar with the tax laws.

(And, you have to ask yourself, are you better off NOT being any employee of this company? Are you paid better? Do you have more freedom to come and go? In other words, are you sure you want to rock the boat? You do get some tax breaks by being paid on a 1099 that you wouldn't get on a W2.)

[jq26]

I don't see why EIC would not be available, but I'm not a tax pro either. here is an eligibility website: http://www.taxcreditresources.org/pages.cfm?contentID=40&pageID=12&Subpages=yes

Regarding 1099s, it depends what kind.

http://www.taxprofessionals.com/cgi-shl/TWServer.exe/Run:PRESSRM_1:TradeWinds_KEY=6

Schedule C? Are you running a sole proprietorship? Did taxslayer ask you this question and you answered yes?

http://www.irs.gov/pub/irs-pdf/i1040sc.pdf

On second thought, I thought you work from home. Since you aren't incorporated, i would think this 'home business' would generate income/loss reportable on Schedule C (this is where you get to deduct business costs against gross income). How did you report this income last year? I hope you didn't report the 1099 amount in full on 1040. Usually 1099s show GROSS INCOME, not net of business costs. Rarely is the 1099 amount even remotely close to net income after expenses.

[willingtocope]

Here's a short version of what I was talking about...

http://www.cecpeople.com/_ForCompanys/WhyBother.html

Note that the links to the court case don't work anymore...but the "details" from the IRS web site does....

[OMGWhatHaveIdone]

This isn't something you can fight on your own...you're going to need a lawyer familiar with the tax laws.

(And, you have to ask yourself, are you better off NOT being any employee of this company? Are you paid better? Do you have more freedom to come and go? In other words, are you sure you want to rock the boat? You do get some tax breaks by being paid on a 1099 that you wouldn't get on a W2.)

I don't want to fight this. I actually think I'm paid worse because I put in on average four hours a day, five days a week. This does not count if I'm asked to do someone else's work, or assist a supervisor. I don't do that very often, but sometimes it makes up for about $200 in my monthly pay. Heck no, I don't want to rock the boat.

I don't really get any tax breaks by being on a 1099. I don't have enough itemized deductions so I always end up taking the standard deduction that I get for being head of household with 2 qualifying children. I can't seem to find any tax breaks that I would qualify for. I have to pay the entire employment tax out of my pocket, whereas an "Employer" contributes half of this tax and the "Employee" contributes the other half.

I'm a one person operation simply doing the work I'm supposed to. I have no business name or employees. And, as I asked in my initial post, I still don't understand why I have to file a Schedule C when I didn't have to do this on my return for 2007.

[willingtocope]

And furthermore...using the Schedule C not only allows you to deduct "business expenses", it also makes it clear that you need to pay "the employer's portion of FICA", etc. If you didn't do that last year, you got a problem...

[jq26]

Now that the thread has updated, I agree with willing. You really have to ask yourself if you are better off as an employee. Likely no. As an independent contractor, you should have generated and deducted substantial write-offs such as the portion of your rent / mortgage that accompanies you home office, cost of the computer, supplies, phone, etc. These are valuable- don't give' em up.

Legally the 'federal' line between employee/independent contractor has to do with control mostly. At my work we have in-house "contractors" that have worked here for years that have the same responsibilities, same hours, same bosses, same jobs, but just don't get offered benefits. We are a global company with +100,000 employees and have been audited by the IRS annually like every other mega-corporation. To me, they certainly seem like employees. But they're considered contractors. Certainly the contractors at my employer are under greater control than you. even if were advantageous for you to be reclassified as an employee, I would say you have a small chance of success. Sorry.

[willingtocope]

Okay, our posts kind of crossed in the mail there.

You seem to understand about the employer's portion of taxes...

But, look into what you can claim on the Schedule C as expenses. Things like use of part of your house, mileage, and extra phone line, paper, pencils, etc....

That stuff isn't like a "deduction"...its a direct decrease in the amount of earned income. You don't pay taxes on it...period. And, it doesn't matter if you claim the standard deductions or not, this decreases the amount of "income" you have.

[jq26]

That stuff isn't like a "deduction"...its a direct decrease in the amount of earned income. You don't pay taxes on it...period. And, it doesn't matter if you claim the standard deductions or not, this decreases the amount of "income" you have.

Yes!!! That's the beauty of it. Schedule C is your best friend. It is not an itemized Schedule A deduction. That's the part about whether you itemize or choose the standard deduction. Schedule C has to do with directly how much profit you made. It is an "above the line" calculation that has to do with hom much profit and loss you even made before we get to the miscellaneous itemized deductions.

Reporting income without using schedule C is like Microsoft selling a $100 program and reporting $100 of income. Its not even close to true. There is cost of goods, advertising, payroll taxes, etc. They deduct that and report, say, $10. You're doing the same on Schedule C.

And let me note that Schedule C deductions are even more valuable than regular deductions. This is because each $1 deducted on schedule C reduces the income by $1 that you'll have to pay federal income tax, state income tax, employer payroll tax, and employee payroll tax (you get hit with both sides of FICA). That could be up to 50%. So deduct away.

[debtmamma]

Good luck at fighting the IC/employee thing. People have tired to sue some of the work at home companies for minimum wage and training pay etc and they don't win. They have way more resources that what single moms working at home trying to get by have. I'm not saying don't look into this later but don't try to fight it right now.

That EIC is not right it has nothing to do with last year. Try using taxact.com. I have 1099s and used them, they make it really easy, there is a spot to enter your 1099 income, it generates the C for your and calculates your SE tax. I don't have any fed tax liability so my SE tax is just deducted from my EIC credit. It is under business income on taxact.

[OMGWhatHaveIdone]

On second thought, I thought you work from home.

Correct.

Since you aren't incorporated, i would think this 'home business' would generate income/loss reportable on Schedule C (this is where you get to deduct business costs against gross income). How did you report this income last year?

Um... for 2007, this is what I did:

1. On the 1040 form, line 21 it says Other Income. List type and amount. then says SEE STATEMENT. The statement says "nonemployee compensation". So I reported the total ($8725) from the statement on line 21. That amount carried down to line 22.
   
2. Then on line 27, One-half of self-employment tax, was calculated ($617) and carried down to line 36.
   
3. Line 37 says to subtract line 36 from 22. This is my adjusted gross income ($8108).
   
4. On page two of the 1040 for that year, it goes on....
   
5. Line 38 is the amount from line 37 which was $8108.
   
6. I took the standard deduction ($7850) on line 40 because I didn't have enough in itemized deductions.
   
7. Subtracted line 40 from 38 and entered in $258 on line 41.
   
8. I have 3 exemptions from the first page. Since line 38 was less than $117,300, I multiplied the number of exemptions x $3400 and came up with $10,200 for line 42.
   
9. Line 43 shows my taxable income as Zero. This carries down to line 57.
   
10. Under Other Taxes, on line 58, I entered the amount from my Schedule SE, which was $1233 and carried it down to line 63. That was my "Total tax".
    
11. Under the Payments section, on line 66a, I had an EIC of $3250, which carried down to line 72.
    
12. I subtracted line 72 from line 63 for a total of $2017 entered on line 73. This was the amount of my refund.

The 1040 for my 2007 return was filed with the following attachments:

1. Supporting Statement for Other Income
   
2. Schedule EIC (Earned Income Credit)
   
3. Form 8862 (Information to Claim Earned Income Credit After Disallowance. I hadn't worked in the past year, which is why Taxslayer had me include this form.
   
4. Schedule SE (Self-Employment Tax)
   
5. Form 8453-OL (US Ind. Income Tax Declaration for an IRS e-file Online Return)

Now you have me thinking that I did something wrong. Should I have received a larger refund? If so, can I file an amended return this year?

I hope you didn't report the 1099 amount in full on 1040. Usually 1099s show GROSS INCOME, not net of business costs. Rarely is the 1099 amount even remotely close to net income after expenses.

Now, I'm not really sure if I did last year's return right. Like I said before, I didn't have enough in itemized deductions to do the 1040a, so I took the standard deduction.

[morrow]

And let me note that Schedule C deductions are even more valuable than regular deductions. This is because each $1 deducted on schedule C reduces the income by $1 that you'll have to pay federal income tax, state income tax, employer payroll tax, and employee payroll tax (you get hit with both sides of FICA). That could be up to 50%. So deduct away.

Bleh...Ive been working on our taxes and this is the first year Ive got a 1099.

I got approx. $15k in 1099 income and like $18k in write offs leaving me with a negative net income.

According to Turbo Tax, this now classifies me as a "HIGH AUDIT RISK" and now Im too scared to submit my file. NOT that Ive done anything illegal.

I just can't recall the last time someone got excited about being audited.

Sorry for the hi-jack.

[debtmamma]

OK that disallowance form, isn't that there if you claimed it and should not have, and then you are on the 2 year you can't claim it thing?

I feel really dumb posting JQ and Willing are experts but I think that has to do with a EIC penalty, you clicked something wrong that I think that made it think that.

[OMGWhatHaveIdone]

And let me note that Schedule C deductions are even more valuable than regular deductions. This is because each $1 deducted on schedule C reduces the income by $1 that you'll have to pay federal income tax, state income tax, employer payroll tax, and employee payroll tax (you get hit with both sides of FICA). That could be up to 50%. So deduct away.

Wow... I didn't know I could do that. I don't even have a clue as to HOW to properly file the Schedule C. I use part of my dining room for an office. It's limited to not more than 25 square feet. My desk and my chair sit in the corner of my dining room. I'm so lost. As you can see from my income filed in 2007, I really can't afford to hire someone to file my returns for me. In 2008, I made even less ($5360 total). What do I do now?

[morrow]

Wow... I didn't know I could do that. I don't even have a clue as to HOW to properly file the Schedule C. I use part of my dining room for an office. It's limited to not more than 25 square feet. My desk and my chair sit in the corner of my dining room. I'm so lost. As you can see from my income filed in 2007, I really can't afford to hire someone to file my returns for me. In 2008, I made even less ($5360 total). What do I do now?

Turbo Tax will walk you through everything. I used the Home and Business edition since I too, do work from home. I previously was paying $400 for someone to do it for me.

However given my previous post about being considered a high audit risk...you may just want to disregard anything I have to say.

[debtmamma]

Correct. Um... for 2007, this is what I did:

1. On the 1040 form, line 21 it says Other Income. List type and amount. then says SEE STATEMENT. The statement says "nonemployee compensation". So I reported the total ($8725) from the statement on line 21. That amount carried down to line 22.
   
2. Then on line 27, One-half of self-employment tax, was calculated ($617) and carried down to line 36.
   
3. Line 37 says to subtract line 36 from 22. This is my adjusted gross income ($8108).
   
4. On page two of the 1040 for that year, it goes on....
   
5. Line 38 is the amount from line 37 which was $8108.
   
6. I took the standard deduction ($7850) on line 40 because I didn't have enough in itemized deductions.
   
7. Subtracted line 40 from 38 and entered in $258 on line 41.
   
8. I have 3 exemptions from the first page. Since line 38 was less than $117,300, I multiplied the number of exemptions x $3400 and came up with $10,200 for line 42.
   
9. Line 43 shows my taxable income as Zero. This carries down to line 57.
   
10. Under Other Taxes, on line 58, I entered the amount from my Schedule SE, which was $1233 and carried it down to line 63. That was my "Total tax".
    
11. Under the Payments section, on line 66a, I had an EIC of $3250, which carried down to line 72.
    
12. I subtracted line 72 from line 63 for a total of $2017 entered on line 73. This was the amount of my refund.

The 1040 for my 2007 return was filed with the following attachments:

1. Supporting Statement for Other Income
   
2. Schedule EIC (Earned Income Credit)
   
3. Form 8862 (Information to Claim Earned Income Credit After Disallowance. I hadn't worked in the past year, which is why Taxslayer had me include this form.
   
4. Schedule SE (Self-Employment Tax)
   
5. Form 8453-OL (US Ind. Income Tax Declaration for an IRS e-file Online Return)

Now you have me thinking that I did something wrong. Should I have received a larger refund? If so, can I file an amended return this year?

Now, I'm not really sure if I did last year's return right. Like I said before, I didn't have enough in itemized deductions to do the 1040a, so I took the standard deduction.

Deductions from your income are diferent than deductions from your business. If you get 1099s you should do a C and then you deduct your business expenses from that, and then your SE tax is based on that.

It's only going to get you a smaller refund though if you do deduct any costs from your business on a C because the EIC will decreased the less $ you make.

[debtmamma]

Wow... I didn't know I could do that. I don't even have a clue as to HOW to properly file the Schedule C. I use part of my dining room for an office. It's limited to not more than 25 square feet. My desk and my chair sit in the corner of my dining room. I'm so lost. As you can see from my income filed in 2007, I really can't afford to hire someone to file my returns for me. In 2008, I made even less ($5360 total). What do I do now?

JQ it's going to have her refund go less if she deducts those things from C because her EIC will be less.

[OMGWhatHaveIdone]

But again, technically, I have no real business expenses to deduct. Heck, I don't even consider myself to have a business. I have a job. I'm thinking I'm screwed here because I have to pay more self employment taxes if I can't find any deductions worth taking and if I do find any, I get a smaller refund in the end. Not to play on my own screen name, but Oh My God.. what did I do?

[debtmamma]

On 2007 on line 21 that should be on line 12 where you attatch a schedule C.

You just didn't answer it for having a biz or something. If you check you have a biz then you can enter in cash or 1099s and then it does the C for you and your SE tax and you can also deduct any loss which will make that less, but you may not want to do that due to the EIC.

[morrow]

But again, technically, I have no real business expenses to deduct. Heck, I don't even consider myself to have a business. I have a job. I'm thinking I'm screwed here because I have to pay more self employment taxes if I can't find any deductions worth taking and if I do find any, I get a smaller refund in the end. Not to play on my own screen name, but Oh My God.. what did I do?

What is it that you do for a living, if you don't mind me asking?

[OMGWhatHaveIdone]

Medical records retrieving.

[debtmamma]

OMG I didn't deduct any, and it's ok too because I use my comptuer and internet for personal use like hanging out here at CIC.

Well it is not right they do us as ICs to save on SE tax, but there is not getting around that right now. It doesn't really matter how we feel about it.

You aren't screwed though.. everything is OK. You will get the EIC and it will cover your SE tax. MY SE tax was for around $700 and my EIC covered all of it and I'm getting a refund.

try taxact.com and you enter in your 1099 under biz they will ask if you if you get a 1099 and you just enter in the Fed ID # and payee name, then you go through questions if you want to deduct anything and it does the C and SE tax for you and everything for you.

[OMGWhatHaveIdone]

OMG I didn't deduct any, and it's ok too because I use my comptuer and internet for personal use like hanging out here at CIC.

Well it is not right they do us as ICs to save on SE tax, but there is not getting around that right now. It doesn't really matter how we feel about it.

You aren't screwed though.. everything is OK. You will get the EIC and it will cover your SE tax. MY SE tax was for around $700 and my EIC covered all of it and I'm getting a refund.

try taxact.com and you enter in your 1099 under biz they will ask if you if you get a 1099 and you just enter in the Fed ID # and payee name, then you go through questions if you want to deduct anything and it does the C and SE tax for you and everything for you.

Since I only made $5360 in 2008, can I file electronically and for free through them?