1099-MISC Box 3 or 7

[blozanor]

Hi everyone,

I hope you could help me with this problem. I understand that box 3 (other incomes) in 1099-MISC is for prizes (among other things) and box 7 for nonemployee compensation. We just have a 1099-MISC with $1395.84 in box 7 that actually correspond to a prize from a photo contest. In this case, should we report it in line 21 of 1040 form? If we try to use it as box 7 we would need to fill Schedule-C and this doesn't make any sense because the person has a full-time job not related with this prize, and of course no way to fill out the business name, profit and vehicle for example.

What do you recommend in this case?

And also, if we put it in line 21 of 1040, could this be a problem because it is in box 7 of 1099-MISC?

Really appreciate your help, thanks

[MargaretMort]

When I asked a similar question, KC said to put it on Line 21 and explain it was for a prize and Box 7 was incorrectly marked. I did that, the e-file was accepted. MM

[blozanor]

Thank you MargaretMort, I must have missed that question.

But, still, how should we explain that box 7 was incorrectly marked? where I mean? We are sending it by mail, and since we need to send the 1099-MISC and the "employer" should have sent it also, we don't know how to report this or just leave it in line 21 although the 1099-MISC says box 7.

Thank you again

[jainen]

>>$1395.84 in box 7<<

I've never understood all the questions like this. That 1099 has no authority at all. It was probably issued as part of a group by a low-pay (i.e., untrained) bookkeeper who doesn't pretend to know anything about your client's tax position. We can't help you either. The fact is, in some cases a contest prize might be self-employment income while in some cases it is other income or even wages. Or it could be royalties, or non-taxable something, or issued to the wrong Tax I.D. number. It's YOUR job to properly characterize it based on your interview and the client's documentation.

So what if the IRS questions it? That's their appropriate role, the way the system is supposed to work. If you're afraid you can't support your treatment of the prize, do a better job with the interview and documentation.

[Pacun]

>>$1395.84 in box 7<<

I've never understood all the questions like this. That 1099 has no authority at all. It was probably issued as part of a group by a low-pay (i.e., untrained) bookkeeper who doesn't pretend to know anything about your client's tax position. We can't help you either. The fact is, in some cases a contest prize might be self-employment income while in some cases it is other income or even wages. Or it could be royalties, or non-taxable something, or issued to the wrong Tax I.D. number. It's YOUR job to properly characterize it based on your interview and the client's documentation.

So what if the IRS questions it? That's their appropriate role, the way the system is supposed to work. If you're afraid you can't support your treatment of the prize, do a better job with the interview and documentation.

This is a beautiful answer and to the point.

During the interview process we will find a lot of information on the situation. That's brings me to a rebuttal point I have to make to one of Jainen’s comments on another post.

The preparer who has the information has to decide where to report the information. You have to do a cost/benefit analysis and a materiality check with the information.

There are times when an employee comes with a 1099-misc and you know for fact that they are employees. You explain to the tax payer the situation. When they are still employed by the 1099 issuer, most of the time they swallow the SE taxes. I think at that point, everybody will be happy. The IRS will collect its money, the employer will get away with something. The Taxpayer will keep his job. The tax preparer will not lose a client or will not cause his client to lose his job.

When the results are inmaterial, you can put it anywhere. When the results affect your client (after you cost/benefit analysis), you have to enter it correctly and answer any letters from the IRS. This is what I mean: If someone won a taxable contest for $350 and gets a 1099-misc with that amount on line 7, I would file a schedule C if that's the only "self-employed" income they have.

I had a 1099-misc box 7 that was going to cost my client more than 1k in SE taxes, I added it to line 21 and I am expecting a letter from the IRS. This was a scholarship paid by my client's employer to my client’s son.

[blozanor]

Thank you for your replies.

I'm sorry if this was a stupid question for you, but we had our doubts and we thought someone from here can help us.

I can assure you that this was a prize from a photo contest (I know for sure after the interview), and that person had a full-time job not related with this.

So, I can take from your answers that we should fill the schedule C, although it is no business and we can't fill the business name and ID lines?

Again, thank you for your help

[Pacun]

Thank you for your replies.

I'm sorry if this was a stupid question for you, ...

So, I can take from your answers that we should fill the schedule C, although it is no business and we can't fill the business name and ID lines?

Again, thank you for your help

I don't think your first posting was a stupid question. Always quote when directly answering.

[jainen]

>>When the results are inmaterial, you can put it anywhere<<

Fair enough. The point is to pay the correct tax, not simply fill out one form or another.

In the original post, $1395 on Schedule C is likely not immaterial because it might generate SE tax or have other effects. On the other hand, it might position the taxpayer to deduct losses from his photography business the following year. We don't know all the details because we don't have the interview notes and documents. The fact that it was a prize or that he has another job does not by itself tell us whether he is in the photography or art print or publishing or any other business.

[MargaretMort]

What I did was bunny hop from L. 21, scroll down the list of reasons to the blank lines at the bottom and enter the amount from the 1099 with a short explanation that Box 7 was incorrect, should have been Box 3. MM

[blozanor]

>>When the results are inmaterial, you can put it anywhere<<

Fair enough. The point is to pay the correct tax, not simply fill out one form or another.

In the original post, $1395 on Schedule C is likely not immaterial because it might generate SE tax or have other effects. On the other hand, it might position the taxpayer to deduct losses from his photography business the following year. We don't know all the details because we don't have the interview notes and documents. The fact that it was a prize or that he has another job does not by itself tell us whether he is in the photography or art print or publishing or any other business.

Thank you jainen, I understand what you mean, of course the point is to pay the correct taxes, this is what we are going to do. Maybe I didn't explain myself clear in the first post and that's what generate the confussion. We really know the client is not in a photography business, we do know this was a prize for a one time contest, and photography is not even a hobby for him, so we wondered why they reported the prize in box 7. Knowing this, we try to figure out which would be the best option, line 21 of form 1040 (explaining that it was a prize on that line) or fill out schedule C, not because the taxes to pay are different (they would be the same), but because we wanted to discuss with the users which option gives less problems.

Pacun, I don't think I said anything to be offended by you, not all of us have the same knowledge as you seem to have in this matter.

[Pacun]

Pacun, I don't think I said anything to be offended by you, not all of us have the same knowledge as you seem to have in this matter.

I am sorry.

Trust me.... I know that first hand and that's why I love this forum, I always ask questions and some of them are simple questions. I think Jainen and I approached your question from all angles.

[grandmabee]

Thank you jainen, I understand what you mean, of course the point is to pay the correct taxes, this is what we are going to do. Maybe I didn't explain myself clear in the first post and that's what generate the confussion. We really know the client is not in a photography business, we do know this was a prize for a one time contest, and photography is not even a hobby for him, so we wondered why they reported the prize in box 7. Knowing this, we try to figure out which would be the best option, line 21 of form 1040 (explaining that it was a prize on that line) or fill out schedule C, not because the taxes to pay are different (they would be the same), but because we wanted to discuss with the users which option gives less problems.

Pacun, I don't think I said anything to be offended by you, not all of us have the same knowledge as you seem to have in this matter.

I don't think the taxes would be the same because you would owe SE if you put on C

I would be on line 21. misc income. he not in the business of photo contest or even photography

[Pacun]

Blozanor, you need to report this on line 21 and enter something like "1099-misc issued by mistake. Prize won not related to self-employment" I always try to squeeze as much information as it can be shown on 1040 line 21.

This 1099 was like a lotto winning but line 21 is the perfect place.

[kcjenkins]

And also, when you file a paper return, you DO NOT ATTACH 1099s. They are information forms only, not included with the tax return, which is why you do not get three copies.

Line 21, explain in the blue lines at the bottom, like Margaret said. I've done it many times, and never had a single problem from doing it that way.

[Julie]

I would have simply labeled it a prize on line 21 and gone forward. I've done that with numbers that would have introduced SE tax as well....never had it questioned.

[blozanor]

Thank you everyone. All of you have been really helpful, we'll follow your advice.