Catherine Posted February 27, 2017 Report Share Posted February 27, 2017 Client helped out her sister-in-law briefly while s-i-l was swamped at her office. Did some filing and copying, basically office grunt work. NOT in the business of hiring herself out as temporary office help. S-i-l gave her a 1099-MISC (rightly) with total in Box 7. Except to my thinking it should have been Box 3, and not subject to SE tax. I'm thinking I need to do a C-EZ, show the 1099, back it off, and then show on Line 21. Yes? No? Other? I'm starting to over-think this one - stop me! Quote Link to comment Share on other sites More sharing options...
BHoffman Posted February 27, 2017 Report Share Posted February 27, 2017 I have reported box 7 on line 21 and noted the EIN of the issuer without the client receiving any notices more than once for these situations. Line 21 Hobby activity income is sometimes reported in box 7, for instance. 1 Quote Link to comment Share on other sites More sharing options...
Lion EA Posted February 27, 2017 Report Share Posted February 27, 2017 Are you talking a couple of days, one project, catch up on filing and outta here? Or, an entire tax season. Continuing to file and copy the new paperwork and not just sort the old stack? Only you know if this was a "hobby" or regular and continuous. 1 Quote Link to comment Share on other sites More sharing options...
ILLMAS Posted February 27, 2017 Report Share Posted February 27, 2017 Shouldn't it be subject to SE? I see it this way, I would normally do my own copies, filing etc..., however if I hire someone "temporary" to do my office filing, I see them as a temporary employee and would issue a box 7 1099. 5 Quote Link to comment Share on other sites More sharing options...
rfassett Posted February 27, 2017 Report Share Posted February 27, 2017 My opinion is that this should have been an employer employee relationship and there should have been a W-2. I will leave it to your judgment as to where you take it from there. 8 Quote Link to comment Share on other sites More sharing options...
Catherine Posted February 27, 2017 Author Report Share Posted February 27, 2017 16 minutes ago, Lion EA said: Are you talking a couple of days A couple of weeks, on a *very* as-I'm-free-to-help basis, to help out s-i-l who got behind on her filing during a busy time. My client and her husband moved and client was actively job-hunting at the time but had some time between job search tasks and interviews to lend a hand. That's why I am thinking NOT subject to SE tax; she is NOT in the business of hiring herself out as office assistant for fun and profit. S-i-l asked for help; it was a little more time than initially thought, so she paid her s-i-l for the time and trouble. Caught up; done; and my client now has a job so she'll not be repeating the activity for her s-i-l or anyone else. Quote Link to comment Share on other sites More sharing options...
RitaB Posted February 27, 2017 Report Share Posted February 27, 2017 I am not as good a friend as you. I would report this on Sch C as it was compensation for work. If she had worked at McDonalds for two weeks (or two hours), never to return to the food industry, SS and MC tax would have been withheld and paid in starting at the first clock in, and no tax pro would give a second thought as to regular and continuous. Yeah, she was really an employee, but just because that was done incorrectly, it doesn't mean you have to break your neck to help her escape the tax liability somebody should have paid. She can rat out sister-in-law I suppose, or ask sister in law to pay half her SE tax, but you have other fish to fry. 12 Quote Link to comment Share on other sites More sharing options...
Catherine Posted February 27, 2017 Author Report Share Posted February 27, 2017 2 minutes ago, RitaB said: I am not as good a friend as you. I would report this on Sch C as it was compensation for work. You have a point; my thought was not based on "getting out of tax liability" but rather just that my client was not engaged in a for-profit venture of being a temporary office assistant. And one of the employee-versus-contractor questions is who chooses work times, and my client was definitely in charge of when she was available to help out. So I see that as fundamentally different from hiring on, finding out that if you stay you will hug everyone there, and quitting in short order, never to try similar work again. 1 Quote Link to comment Share on other sites More sharing options...
RitaB Posted February 27, 2017 Report Share Posted February 27, 2017 54 minutes ago, Catherine said: So I see that as fundamentally different from hiring on, finding out that if you stay you will hug everyone there, and quitting in short order, never to try similar work again. Crying. I also see it like ILLMAS. SIL is escaping SE tax on the amount she paid for this work. I don't think IRS really wants us all looking for hobby office grunts and shifting our income to them. Even if they hug us. 3 Quote Link to comment Share on other sites More sharing options...
Lion EA Posted February 27, 2017 Report Share Posted February 27, 2017 I know lots of people who took any work they could find, especially with flexibility, while they were job-hunting/between jobs. They did it for income or networking or to keep their hand in or not to appear unemployed while they looked for something more permanent/ more "career" than just a job. But, they were jobs. Employee. Or, Schedules C and SE. Probably the latter since all have moved on, leaving your client with a 1099-MISC box 7. Her employer got work done that she would have had to do herself or hire someone else to do. Employer controlled where, what, who (your client couldn't send someone else unannounced, right?), tools, and even mutually agreeable times (I don't let my very, very, part-time assistant come at 3 a.m. or when I'm not in my home office, for instance). By the way, my own VPT assistant is down to about once/quarter as the elderly clients she helped for me have moved into facilities or passed away, so now it's just some filing, shredding, organizing for my business and sporatically for my clients. I still pay her on a W-2. Quote Link to comment Share on other sites More sharing options...
Gail in Virginia Posted February 27, 2017 Report Share Posted February 27, 2017 There are two different issues - contractor vs employee, and box 3 vs box 7. I understand Catherine's point - for example, I had a client who got a 1099 from the LTC insurance company for taking care of her mother. Normally, that type of work would result in SE tax BUT the taxpayer was not in that business - she only did the work because it was for her mother. This sounds similar - the taxpayer is not in the business of performing clerical tasks - she only did it because it was her sister in law, and she needed some short term help. However, if the taxpayer goes out and gets a job as a file clerk, secretary or receptionist I think it would be harder to make this argument. 1 Quote Link to comment Share on other sites More sharing options...
Catherine Posted February 27, 2017 Author Report Share Posted February 27, 2017 Gail has it exactly. No doubt it's taxable income. I just have a hard time seeing this as being subject to SE tax. It was a favor that went longer than expected, so turned into a paid favor. That is NOT being in the business for profit. Which is where SE tax kicks in. 1 Quote Link to comment Share on other sites More sharing options...
BHoffman Posted February 27, 2017 Report Share Posted February 27, 2017 I think it's obvious that SIL should have either paid the client as an employee, or just given her the money as a nondeductible personal gift. Why not put the expenses together and run the Sch C with home office, cell phone, mileage, etc. and see how it comes out compared to reporting it on line 21? What is the tax difference between a Sch C vs. Line 21? If the client receives an IRS notice, will she win her argument? I don't think so. How much additional tax if IRS changes the income to SE? Would she face the accuracy related penalty? Quote Link to comment Share on other sites More sharing options...
Catherine Posted February 27, 2017 Author Report Share Posted February 27, 2017 21 minutes ago, BHoffman said: run the Sch C with home office, cell phone, mileage, etc. No home office, no cell phone. Maybe mileage. I'll have to talk to her. Yeah, this is definitely a case where the s-i-l, trying to be nice and thank my client for all the help she gave by paying her, really bolluxed things up. Quote Link to comment Share on other sites More sharing options...
rfassett Posted February 27, 2017 Report Share Posted February 27, 2017 If there is any question about the employee vs contractor issue, run through the form SS-8. If there is no question about that then consider Form 8919. Quote Link to comment Share on other sites More sharing options...
BHoffman Posted February 27, 2017 Report Share Posted February 27, 2017 23 minutes ago, Catherine said: No home office, no cell phone. Maybe mileage. I'll have to talk to her. Yeah, this is definitely a case where the s-i-l, trying to be nice and thank my client for all the help she gave by paying her, really bolluxed things up. Maybe SIL should be asked by your client to pay the taxes as a nondeductible gift since she bolluxed up. That would really be nice. Nicer than your client running the SS8 and 8919. And a big hug. I take it your client is probably young and not very wealthy. I'm handing a tax return to a single with no dependents twenty-something youngster who made around $24,000 in 1099M income working free-lance as an admin assistant for several real estate agents. Collected unemployment. No health insurance. She's looking at around $4k in taxes due. Pretty sure she doesn't have that laying around. We'll be talking about an installment agreement. Ugh. 1 Quote Link to comment Share on other sites More sharing options...
Catherine Posted February 27, 2017 Author Report Share Posted February 27, 2017 1 minute ago, BHoffman said: She's looking at around $4k in taxes due. Almost everyone I have ever dealt with who has dug themselves a nice deep hole has done it by not making provision for SE tax. Sometimes they paid the divorce lawyer, sometimes they needed every penny to pay rent and buy food, sometimes they projected $X for the year and really made $3X and didn't save. 1 Quote Link to comment Share on other sites More sharing options...
Lion EA Posted February 27, 2017 Report Share Posted February 27, 2017 If it was really a favor between close relatives, then your client can ask for the 1099 to be corrected to zero if money was really just a gift for being a help when needed. Your client can offer her help again to file the forms. Then it won't appear on your client's return. And, if under $14,000 (over $14,000 would seem to be a LOT of help) no gift tax return for the s-i-l. 1 Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted February 27, 2017 Report Share Posted February 27, 2017 Everyone is overthinking this. Should have been W-2. Since it was not, Schedule C or C-EZ subject to SE. All the other chatter is simply trying to avoid SE. I guarantee you this is the way an auditor would rule. 4 Quote Link to comment Share on other sites More sharing options...
Roberts Posted March 1, 2017 Report Share Posted March 1, 2017 On 2/27/2017 at 0:58 PM, Catherine said: Gail has it exactly. No doubt it's taxable income. I just have a hard time seeing this as being subject to SE tax. It was a favor that went longer than expected, so turned into a paid favor. That is NOT being in the business for profit. Which is where SE tax kicks in. I agree with Catherine 100%. If I do carpentry and electrical work for my brother-in-law to build part of his barn into an office - that is NOT my area of expertise and I do not hold myself out as a member of either of those professions. I'd report the amount he paid me - I would NOT report it as SE. There is entirely too little information to indicate this is anywhere close to being a W2 employee situation. 2 Quote Link to comment Share on other sites More sharing options...
RitaB Posted March 1, 2017 Report Share Posted March 1, 2017 On 2/27/2017 at 10:26 AM, Catherine said: A couple of weeks, on a *very* as-I'm-free-to-help basis... 16 minutes ago, Roberts said: There is entirely too little information to indicate this is anywhere close to being a W2 employee situation. Yeah, I changed my opinion about the Employee status when I saw that she came and went as she pleased. Sounds like a subcontractor. But I am Letting. It. Go. Now. 3 Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted March 1, 2017 Report Share Posted March 1, 2017 Sorry but I disagree. While I have used that argument (not in the trade or business) successfully in one audit, providing labor to a business for cash from that business is SE all the way in my book. As soon as the business sends the 1099 Misc, you got a trade or profession that a business was willing to pay you to do. I know I am in the minority here. Tom Newark, CA 4 Quote Link to comment Share on other sites More sharing options...
RitaB Posted March 1, 2017 Report Share Posted March 1, 2017 5 minutes ago, BulldogTom said: Sorry but I disagree. While I have used that argument (not in the trade or business) successfully in one audit, providing labor to a business for cash from that business is SE all the way in my book. As soon as the business sends the 1099 Misc, you got a trade or profession that a business was willing to pay you to do. I know I am in the minority here. Tom Newark, CA I actually do not think you are in the minority here. 4 Quote Link to comment Share on other sites More sharing options...
Roberts Posted March 6, 2017 Report Share Posted March 6, 2017 On 3/1/2017 at 3:37 PM, BulldogTom said: As soon as the business sends the 1099 Misc, you got a trade or profession that a business was willing to pay you to do. I don't agree. Client received a check this year for $9k and will receive one every year for 10 years on land she inherited in North Dakota for the right to drill for oil on her land sometime over those 10 years. With oil where it is, they aren't drilling yet. I'd never seen it before so I called the IRS and they declared box 3 or box 7 and line 21 were all correct. The company which fills out the 1099 does NOT determine how the income is taxed. (I think they said box 3 - maybe it was something else as an option) I've seen multiple instances where box 3 was the correct check but the producer of the form delivered it incorrectly with box 7. 1 Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted March 6, 2017 Report Share Posted March 6, 2017 31 minutes ago, Roberts said: I don't agree. Client received a check this year for $9k and will receive one every year for 10 years on land she inherited in North Dakota for the right to drill for oil on her land sometime over those 10 years. With oil where it is, they aren't drilling yet. I'd never seen it before so I called the IRS and they declared box 3 or box 7 and line 21 were all correct. The company which fills out the 1099 does NOT determine how the income is taxed. (I think they said box 3 - maybe it was something else as an option) I've seen multiple instances where box 3 was the correct check but the producer of the form delivered it incorrectly with box 7. There is a difference between what I said and your circumstance. In the earlier post, I said if you have provided labor to a company and they pay you for that labor, you have entered a trade or profession, and when the company sends you a 1099 Misc, regardless of which box it is in, you are SE all the way. See my post below I agree with your situation. There is no labor or services being provided by your client, not subject to SE. I did one the other day where a client rents land to a farmer to grow crops on. The 1099 MISC was coded to box 7. Wrong, it is rents and goes to the Sch. E and I did it that way. Tom Newark, CA On 3/1/2017 at 1:37 PM, BulldogTom said: ... providing labor to a business for cash from that business is SE all the way in my book. As soon as the business sends the 1099 Misc, you got a trade or profession that a business was willing to pay you to do. 2 Quote Link to comment Share on other sites More sharing options...
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