Tax Question on Gigs and 1099s

[TromboneAl]

First tax question of the season...

I used to file a Sched C for my jazz gigs, but now with $1,000/year for piano lessons, I never make a profit, so I just treat it as a hobby.

I've got a gig next week for which I needed to supply a W9 form. I will receive $240, of which $160 will be distributed to the bass player and drummer.

How should I handle this on my 2011 tax forms? I want to avoid the extra work of doing a Sched C. However, without a C, there's no way to show the legitimate offsets to that income.

I'm tempted to just pay the tax (which will probably be about $24) on the full $240.

Thanks.

 

[rothlev]

Hobby income goes on line 21. However as you noted there are no offesets, except if you itemize subject to 2% of AGI as a job related expense. I would do a short form Sch C, and write off the expenses. If you show a loss 3 consective years the IRS will likely consider it a hobby.

 

[Texas Proud]

They might not even send a 1099 since it is less than $600....

But if you get one, you need to put the full amount down somewhere and then offset it with your expenses...

 

[Mulligan]

I never have received 1099 forms from places I officiate at. They only send them if you earn more than $600.

 

[TromboneAl]

They might not even send a 1099 since it is less than $600....

But if you get one, you need to put the full amount down somewhere and then offset it with your expenses...

OK, that's interesting. So if I don't get a 1099, I don't have to worry that an IRS computer is going to wonder why I didn't report the $240? IOW, if I don't get a 1099, the IRS doesn't see the amount.

 

[Mulligan]

OK, that's interesting. So if I don't get a 1099, I don't have to worry that an IRS computer is going to wonder why I didn't report the $240? IOW, if I don't get a 1099, the IRS doesn't see the amount.

If you don't get one sent to you, they don't either! The federal deficit is going to explode, if you don't pay your part of the $240. Hope you can live with yourself

 

[haha]

I thought you managed to keep yourself in or close to zero tax anyway. Has this changed?

Ha

 

[TromboneAl]

I thought you managed to keep yourself in or close to zero tax anyway. Has this changed?

Ha

Well, it depends on what you mean by "close." Last year we converted $40K to a Roth, and paid $1,400 in taxes.

 

[haha]

Well, it depends on what you mean by "close." Last year we converted $40K to a Roth, and paid $1,400 in taxes.

As I suspected you still have your taxation issue very much on the back burner-and the gas is shut off at the main.

Ha

 

[JakeBrake]

One of my retirement "jobs" is doing mystery shopper type work for a megacorp that has many lawyers and CPA's on staff. Megacorp has stated in writing that they will cut me off each year before my "earnings" reach an amount that requires a 1099.

 

[braumeister]

My Schedule C has never taken me more than ten minutes to prepare, so I don't see it as a big deal.

 

[Sue J]

OK, that's interesting. So if I don't get a 1099, I don't have to worry that an IRS computer is going to wonder why I didn't report the $240? IOW, if I don't get a 1099, the IRS doesn't see the amount.

I had a similar situation for a few years working as an usher at athletic events for a nearby state university. Most years I made under $600 and didn't receive a 1099. I always claimed it as income, using Line 21. My concern was that the university would probably be audited at some point and athletic events were one of their income streams. The ushers were one of the expenses against that income and if they decided to check a random sample of ushers to make sure they claimed the income I wanted to be one that claimed and paid taxes on the income.

The penalty for not disclosing income is probably bigger than the tax (15% for me at the time). Most of the other ushers did not claim it and talked about the pay being so nice because it was "tax free".

One year I made over $600 and was issued a 1099. I filled out a Sched C and claimed the mileage as the only expense. Paid income and self employment taxes on the net, so it took a chunk of the proceeds.

This year the university hired the usher staff as employees and will be paying them with payroll that has taxes withheld.

If you decide to go with a Schedule C you can take the amount that you paid to the other two musicians as an expense and just pay taxes on your own income. Pay them by check so you have a record. Assume that the restaurant owner will be taking the $240 paid to you as an expense. If he gets audited your name and SSN will be there in his records.

 

[LOL!]

I find that a Schedule C is really no extra work at all if all you want to do is declare income. TurboTax and other tax programs handle it trivially. I would've said that declaring "hobby income" is more work.

By using a Schedule C, I would think that you would have continuity with the past and the future.

 

[braumeister]

By using a Schedule C, I would think that you would have continuity with the past and the future.

Absolutely. And another advantage is that the IRS distinguishes between self-employment income and a hobby by whether you have made a profit in three of the last five years. So the way I understand it, if you don't show at least one dollar of profit in three of the last five years, you lose your option, and you're stuck with the "hobby" label, meaning you can't deduct any expenses at all.

 

[TromboneAl]

It's not the filling out of the sched C that's bothersome, it's keeping track of all the gigs and tips and mileage, etc. Too much like work.

On a good year, I'd have a profit of about $100. A typical gig involves driving 65 miles and getting $35.

 

[LOL!]

It's not the filling out of the sched C that's bothersome, it's keeping track of all the gigs and tips and mileage, etc. Too much like work.

On a good year, I'd have a profit of about $100. A typical gig involves driving 65 miles and getting $35.

There is no requirement with a Schedule C that you deduct any of your expenses.

There is also no more requirement to keep track of all the gigs than you would have to do with "hobby income".

 

[TromboneAl]

There is no requirement with a Schedule C that you deduct any of your expenses.

From my reading, that is not true. That is, you must deduct all expenses that you are entitled to.

Note that otherwise, the "must make a profit 3/5 years" concept makes no sense. You could just leave out enough expenses so that you make a few dollars of profit each year.

 

[Texas Proud]

From my reading, that is not true. That is, you must deduct all expenses that you are entitled to.

Note that otherwise, the "must make a profit 3/5 years" concept makes no sense. You could just leave out enough expenses so that you make a few dollars of profit each year.

You are probably reading wrong.... there is nothing in the tax code that make you take a deduction you are entitled to take... expenses on a Sch C are the same as deductions...


Also, there is not hard rule on the 3/5 rule you mention... a company can lose money for 5 straight years and still be OK... the test is if it has a profit motive... that is a judgement call...

Remember that Amazon did not make a profit for many years.... nobody would say it was not a legitimate company...

 

[Onward]

Yes, the 3/5 rule is just a guideline, not hard and fast.

I'm certain you have to take all expenses you qualify for on Sched C, though I can't cite the rule in IRS docs. If you could pick and choose the expenses you claim, you could manipulate your income upward so as to qualify for credits, like the Earned Income Credit, that you wouldn't otherwise qualify for. IRS doesn't want you doing that....

 

[Nords]

You are probably reading wrong.... there is nothing in the tax code that make you take a deduction you are entitled to take... expenses on a Sch C are the same as deductions...

In a separate tax situation, you have to take the depreciation on rental property. Well, technically you can blow it off, but the IRS assumes that you've been taking depreciation when you sell the place and have to pay depreciation recapture.

I can see that the IRS would take a dim view of not using every Schedule C deduction to which one is entitled.

 

[rothlev]

Nords is correct , you have to take your expenses, and your depreciation. The IRS is aware that people manipulate their expenses on Sch. C to maximize credits such as the earned income credit, either lowering or raising their expenses to hit the sweet spot for a maximum credit.

 

[TromboneAl]

One thing I've done in the past is this: if I drove into town for a gig, but also bought something, I could choose to not deduct the mileage costs, or could choose to deduct part of them.

 

[kaneohe]

Supposedly the answer is here:

IRC § 183: Activities Not Engaged in For Profit (ATG)

some more digging required to see where that statement is but it seems like the water is here if the horse wants to drink..........


Re: Must you take all business losses?
Posted by: MadDog (IP Logged)
Date: October 28, 2011 03:57PM

From the IRS Audit Guide (revised 6/2009) for section 183...


Examiners should be alert for situations where the taxpayer may have manipulated income and or expenses to meet the presumption rule determination.