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Salary from a non-profit


Possi

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Uh Boy... I think I took a client that I don't want. The more I look at this, the less I want it. 

There are many things going on with the 2016 tax return I am reviewing. I'm NOT amending it unless she gets a love letter from the IRS. There are 5 Sch C's, one for each 1099 including a rental income from renting out farm land. Yes, she put it on Sch C. 

Wait, it gets better. She started a "non-profit" and she is the founder. She receives a "salary."  No, it isn't a W2, it is a 1099, Box 3 "other income" for $7,000. 

Wait, it gets better. In 2016, her net income from all those Sch C's was $-2075.00. Yes, NEGATIVE $2075.00. There were zero wages, zero withholding, zero refund/balance due. 

Wait, it gets better. Her self-prepared return listed her occupation as "Attorney." But, you probably already knew that, right? 

All of that is really just annoying. Not earth-shattering by any means. 

Here's my question: 

She has a hiking business, sole owner LLC with an EIN tax ID number. She has income from that LLC which is not reported on a 1099, PLUS two 1099s issued to her personal SS number. I believe I can lump all that income into the LLC (on one Sch C) since it's all hiking work. Am I right? 

The 1099 from the "non-profit" must go on its own Sch C, I believe, because this is executive-type work. Am I right? It is Box 3 income, but it's subject to SE tax since it's her "salary" for working. 

Did I mention the THREE K1s? ohmygerd. 

 

 

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I don't think there's anything wrong with telling a prospective client their situation is unnecessarily complex and I don't want to move forward with the relationship.  One reason might be that their income is so low it wouldn't justify the cost of handling the audit which I think is inevitable. That doesn't even get into the fact that she's probably already doing things that are wrong or certainly beyond what I'd consider to be a gray area. 

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1 minute ago, JohnH said:

I don't think there's anything wrong with telling a prospective client their situation is unnecessarily complex and I don't want to move forward with the relationship.  One reason might be that their income is so low it wouldn't justify the cost of handling the audit which I think is inevitable. That doesn't even get into the fact that she's probably already doing things that are wrong or certainly beyond what I'd consider to be a gray area. 

Thanks, I am considering that and you put it quite nicely. She was a personal referral, as they all are, and her boyfriend is a good client. I wouldn't want to lose him, so I'll stick my neck out and simplify this. 

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As for the 1099's issued in her SS for hiking work, yes they can go onto the Schedule C. That's rather normal. You enter the 1099 and attribute it to the Sch C and the IRS will easily see it.

I have a farm rental on a Schedule C. It's not real clean and obviously not preferred but I don't think it's horrific. The previous preparer did it that way but you can also change it. Thing is if it's rental - I'm not sure it really makes a big difference unless they are showing a loss.

I agree with you that the 1099 for the "non profit" is also to go on its own Sch C. I do hate doing non-profits. Do you need to fill out a special return for the non-profit or is someone else doing that?

 

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2 hours ago, JohnH said:

I don't think there's anything wrong with telling a prospective client their situation is unnecessarily complex and I don't want to move forward with the relationship.  One reason might be that their income is so low it wouldn't justify the cost of handling the audit which I think is inevitable. That doesn't even get into the fact that she's probably already doing things that are wrong or certainly beyond what I'd consider to be a gray area. 

 

2 hours ago, jklcpa said:

I wouldn't want to touch that one either, and yes, John put it very nicely.

 

I wouldn't touch this for double or triple the normal fee !

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1 minute ago, cbslee said:

 

I wouldn't touch this for double or triple the normal fee !

Oh, it won't be cheap! 

 

1 hour ago, Roberts said:

As for the 1099's issued in her SS for hiking work, yes they can go onto the Schedule C. That's rather normal. You enter the 1099 and attribute it to the Sch C and the IRS will easily see it.

I have a farm rental on a Schedule C. It's not real clean and obviously not preferred but I don't think it's horrific. The previous preparer did it that way but you can also change it. Thing is if it's rental - I'm not sure it really makes a big difference unless they are showing a loss.

I agree with you that the 1099 for the "non profit" is also to go on its own Sch C. I do hate doing non-profits. Do you need to fill out a special return for the non-profit or is someone else doing that?

 

Yes, someone else is doing the 990.

One of the K1s appears to be a law firm and her name is on the title of the firm. My guess is that it is a family business. They are probably setting up all these K1s and they probably set up this "non-profit." Me thinks her 1099 for $7k means it's not really a non-profit at all. It's legalese. 

The farm rental income will go on Sch E out of my office. They are not performing any actions or services, so it's straight rental income. Since I'm not following another professional, just an "Attorney" DIYer, I'll do it right. 

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9 hours ago, Roberts said:

I have a farm rental on a Schedule C. It's not real clean and obviously not preferred but I don't think it's horrific. The previous preparer did it that way but you can also change it. Thing is if it's rental - I'm not sure it really makes a big difference unless they are showing a loss.

What about SE tax if showing a profit?  The right way is the only way.

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22 hours ago, Possi said:

This gal is only renting land. She is not providing any services. Sch E rental income.

Should go to Form 4835 then....

The 1099 from the non profit seems "normal" if she was the only one paid.  Pretty easy to check the status of the NP on Guidestar or Charity Navigator to see how big they are/busy.

And attorney getting a K-1 from the partnership is pretty typical as well.

She might be a bad "DIY"er, but otherwise, what are your concerns?  We clean up messes all the time. 

And then she might start referring folks to you that need tax help.

Rich

 

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