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Yardley, Yours is a good question. If you are attempting to prepare a return pursuant to GAAP and/or Section 263A, you would allocate those expenses that are directly attributable to the production of income as COGS - and wages is one of those items that would be allocated. The reality, in the big scheme of things for most Schedule C type businesses, it is six of one; half dozen of the other - in my humble opinion.

You might be able to get a penalty abatement based on first time offense if that is the case. http://www.journalofaccountancy.com/issues/2013/jul/20137885.html You might get an abatement based on reasonable cause if you can formulate a plausible argument. I always take the approach of sending the CP2000 back to the IRS with the request for abatement attached and without payment. I request the IRS to send the client a corrected billing should the abatement request be approved and I tell the IRS that payment will be made post haste upon receipt of the corrected billing. Don't know if I am batting 1.000 with this approach, but very, very close to it for sure. Good luck!

If using COGS, I use other and list it as contract labor for 1099 subs.

I agree with the file an extension approach. After all with all the usual "tax extender" credits and etc still up in the air, you may have a number of unknowns which won't be resolved until the end of this year.

Good to know on the rollover instead of duplicating. Thanks.

Thanks for the information about the fully informed jury association, Catherine. That was interesting and informative!

You don't duplicate it, you do a rollover. When you click on the rollover tab, you have two tabs: 2013 and last Month/Quarter. Choose Last Month/Quarter. Then choose the return you want to do a short year on. This will make your beginning depreciation and other rolled over numbers correct. As for efiling it, it sounds like you have to call ATX to get them to allow it. I've always just paper filed.

I agree with Jack, the IRS will make the determination. Based on what you say, odds are she will not get any of the refund, but she might. And regardless, you should file it just to establish her position as innocent spouse.

My current computer will be 6 years old in December. I bought the beefiest one I could afford in 2009, Win 7 Pro 64 bit, i7 processor, lots of RAM, and it was just stripped & all important stuff reloaded when I got the BSOD in June due to my video card fan failing. Plus put in more RAM. My laptop is only 3 years old. So I'm in no hurry to upgrade.

Fill in all the amounts accurately. The IRS will determine if/how much will be refunded to her. Nothing you can do to change the process.

Reagan: "Government is not the solution to our problem government IS the problem"