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Frequently Asked Tax Questions And Answers
Keyword: Schedule C or C-EZ 4.3 Interest/Dividends/Other Types of Income: 1099–MISC, Independent Contractors, and Self-employed
My son is a newspaper carrier. I would like to know if this income
is subject to Social Security and Medicare tax and if I must file a Schedule
C for him?
Your son may be liable to pay into the Social Security and Medicare system
by paying self-employment tax. However, if your son is under the age of 18
he exempt from self-employment tax. Persons engaged in the trade or business
of delivering or distributing newspapers or shopping news (including any services
directly related to such delivery or distribution) are considered by statute
as nonemployees and are treated as self-employed for all Federal tax purposes,
including income and employment taxes.
Independent contractors report their income on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship) ,
or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net
Profit from Business . See Form 1040, Schedule SE (PDF), Self-Employment
Tax , which must be filed if net earnings from self-employment are $400
or more. If your child is a newspaper carrier under the age of 18, he is exempted
from self-employment tax.
References:
I work as an independent contractor, but I do not own a business
and do not perform services in the name of a business. Can I file my tax return
without filing Schedule C or Schedule SE?
The income you earn as an independent contractor generally will be considered
income from self-employment and you will need to file Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship),
or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net
Profit from Business. You will also need to file Form 1040, Schedule SE (PDF), Self-Employment Tax, if you had net earnings
from self-employment of $400 or more.
References:
I received a Form 1099-MISC from a company that paid all employees
this way. Will my income go on line 21 of Form 1040 as Other Income or
on Schedule C?
Since your income was reported to you on a Form 1099-MISC, box 7, the company
has treated you as an independent contractor and your income is treated as
self-employment income. You will need to report that income, and any related
expenses, on Form 1040, Schedule C (PDF), Profit
or Loss from Business, or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net Profit from Business. You will also
need to use Form 1040, Schedule SE (PDF), Self-Employment
Tax, to compute and report your Social Security and Medicare tax, if
you had net earnings from self-employment of $400 or more. You may also need
to make quarterly estimated tax payments. You would use Form 1040-ES (PDF), Estimated Tax for Individuals, for this.
If you feel that you were an employee and not self-employed, you can file Form SS-8 (PDF), Determination of Worker Status for Purposes
of Federal Employment Taxes. This will enable the IRS to make a determination
as to whether you are an employee or an independent contractor. To do this
the IRS will need information from you and your employer.
For information about determining whether you are an employee or an independent
contractor, please see Chapter 2 of Publication 15-A (PDF), Employer's Supplemental Tax Guide.
References:
- Form 1040, Schedule C (PDF), Profit
or Loss from Business
- Form 1040, Schedule C-EZ (PDF), Net
Profit from Business
-
Instructions for Form 1040, Schedule C
- Form 1040, Schedule SE (PDF), Self-Employment
Tax
- Form 1040-ES (PDF), Estimated
Tax for Individuals
- Form SS-8 (PDF), Determination
of Worker Status for Purposes of Federal Employment Taxes and Income Taxes
- Publication 334, Tax Guide for Small Business
- Publication 15-A (PDF), Employer's
Tax Guide to Fringe Benefits
- Tax Information for
Business
- Tax Topic 355, Estimated Tax
10.2 Capital Gains, Losses/Sale of Home: Stocks (Options, Splits, Traders)
I buy and sell stocks as a day trader using an online brokerage firm. Can
I treat this as a business and report my gains and losses on Schedule C?
A business is generally an activity carried on for a livelihood or in good faith
to make a profit. Rather than being defined in the tax code, exactly what activities
are considered business activities has long been the subject of court cases. The facts
and circumstances of each case determine whether or not an activity is a trade or
business. Basically, if your day trading activity goal is to profit from short-term
swings in the market rather than from long-term capital appreciation of investments,
and is expected to be your primary income for meeting your personal living expenses,
i.e. you do not have another regular job, your trading activity might be a business.
If your trading activity is a business, your trading expenses would be reported
on Form 1040, Schedule C (PDF), Profit or Loss from
Business (Sole Proprietorship) instead of Form 1040, Schedule A (PDF), Itemized
Deductions. Your gains or losses, however, would be reported on Form 1040, Schedule D (PDF), Capital Gains and Losses, unless you file an election
to mark to market under Internal Revenue Code Section 475 (f).
If your trading activity is a business and you elect to change to the mark-to-market
method of accounting, you would report both your gains or losses on Part II of Form 4797 (PDF), Sales of Business Property. An election
to mark to market generally must be made by the due date of the prior year's return.
A change in your method of accounting requires the consent of the Commissioner
and can not be revoked without the consent of the Commissioner. Though there is no
publication specific to day traders, the details for traders information for securities
and commodities is covered in Internal Revenue Code Section 475(f) and Revenue Procedure
99-17, and as modified by Rev. Proc. 200-19 .
References:
Is there any publication that explains the proper way to file a Schedule
C as a day trader?
There is no publication specific to DayTraders. But see the
Instructions for Form 1040, Schedule D . The section "Traders in Securities" has information for
DayTraders.
Internal Revenue Code section 475(f) and Revenue Procedure 99-17 apply only to
traders who elect to use mark-to-market method of Accounting.
References:
12.2 Small Business/Self-Employed/Other Business : Form 1099–MISC & Independent Contractors
I received a Form 1099-MISC from a company that paid all workers this way.
Will my income go on line 21 of Form 1040 as Other Income or on Schedule
C?
Do not report the income reported on Form 1099-MISC, box 7 on line 21 if the income
is self employment income. If your income was reported to you on a Form 1099-MISC,
in box 7, the company has treated you as an independent contractor and your income
is treated as self-employment income. You will need to report that income, and any
related expenses, on Form 1040, Schedule C (PDF), Profit
or Loss from Business, or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net Profit from Business. You will also need
to use Form 1040, Schedule SE (PDF), Self-Employment
Tax to compute and report your social security and Medicare tax. You may also
need to make quarterly estimated tax payments. You would use Form 1040-ES (PDF), Estimated Tax for Individuals, for this.
References:
- Form 1040, Schedule C (PDF), Profit
or Loss from Business
- Form 1040, Schedule C-EZ (PDF), Net
Profit from Business
-
Instructions for Form 1040, Schedule C
- Form 1040, Schedule SE (PDF), Self-Employment
Tax
- Form 1040-ES (PDF), Estimated Tax for
Individuals
- Publication 334, Tax Guide for Small Business
- Tax Topic 355, Estimated Tax
I work as an independent contractor, but I do not own a business and do
not perform services in the name of a business. Can I file my tax return without filing
Schedule C or Schedule SE?
The income you earn as an independent contractor generally will be considered income
from self-employment and you will need to file Form 1040, Schedule C (PDF), Profit
or Loss from Business (Sole Proprietorship), or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net Profit from Business.
You will also need to use Form 1040, Schedule SE (PDF), Self-Employment
Tax, if you had net earnings from self-employment of $400 or more. Since there
is no withholding on your self-employment income, you may need to make quarterly estimated
tax payments. This is done using a Form 1040-ES (PDF), Estimated
Tax for Individuals.
References:
- Form 1040, Schedule C (PDF), Profit
or Loss from Business (Sole Proprietorship)
- Form 1040, Schedule C-EZ (PDF), Net
Profit from Business
-
Instructions for Form 1040, Schedule C
- Form 1040, Schedule SE (PDF), Self-Employment
Tax
- Tax Information for Business
- Form 1040-ES (PDF), Estimated Tax for
Individuals
- Publication 1779 (PDF), Employee Independent Contract
Brochure
- Publication 533, Self Employment Tax
- Publication 505, Tax Withholding and Estimated Tax
- Publication 334, Tax Guide for Small Business
12.8 Small Business/Self-Employed/Other Business : Schedule C & Schedule SE
I am self-employed. How do I report my income and how do I pay Medicare
and social security taxes?
Your self-employment income is reported on Form 1040, Schedule C (PDF), Profit
or Loss from Business, or on Form 1040, Schedule C-EZ (PDF), Net
Profit from Business.
Your Medicare and social security taxes are reported on Form 1040, Schedule SE (PDF), Self-Employment Tax.
As a self-employed person, you pay your Medicare and social security taxes the
same way you pay your income taxes. If you expect to owe less than $1,000 in total
taxes, you can pay them when you file your income tax return. If you expect to owe
$1,000 or more in total taxes, you will need to make estimated tax payments. These
payments are made quarterly using Form 1040-ES (PDF), Estimated
Tax for Individuals. You will need to figure these taxes at the beginning of
the year. To learn about figuring and making estimated tax payments, please refer
to Publication 505, Tax Withholding and Estimated Tax.
References:
I am a sole proprietor. Can I use Schedule C-EZ instead of Schedule C?
You can use Form 1040, Schedule C-EZ (PDF) to determine
your net profit if you have only one sole proprietorship and you meet all of the following
requirements: your business expenses were not more than $2,500, and you did not have
a net loss from your business, you use the cash method of accounting, and you did
not have an inventory during the year. There are other requirements. Refer to page
1 of Schedule C-EZ to see if you qualify. Additional information is also available
in Tax Topic 408, Sole Proprietorship.
References:
I buy and sell stocks as a day trader using an online brokerage firm. Can
I treat this as a business and report my gains and losses on Schedule C?
A business is generally an activity carried on for a livelihood or in good faith
to make a profit. Rather than defined in the tax code, exactly what activities are
considered business activities has long been the subject of court cases. The facts
and circumstances of each case determine whether or not an activity is a trade or
business. Basically, if your day trading activity goal is to profit from short-term
swings in the market rather than from long-term capital appreciation of assets, if
your income is primarily from the sale of securities rather than from dividends and
interest paid on securities, and if you expect this income to be your primary income
for meeting your personal living expenses, i.e. you do not have another regular job,
then your trading activity might be a business.
For details about not-for-profit activities, refer to Publication 535, Business
Expenses. That chapter explains how to determine whether your activity is carried
on to make a profit and how to figure the amount of loss you can deduct.
If your trading activity is a business, your trading expenses would be reported
on Form 1040, Schedule C (PDF), Profit or Loss from
Business (Sole Proprietorship) , instead of Form 1040, Schedule A (PDF), Itemized Deductions. Your gains or losses, however,
would be reported on Form 1040, Schedule D (PDF), Capital
Gains and Losses , unless you file an election to change you method of accounting.
If your trading activity is a business and you elect to change to the mark-to-market
method of accounting, you would report both your gains or losses and your trading
expenses in Part II of Form 4797, Sale of Business Property. See Publication 550, Investment Income and Expenses , for details.
A change in your method of accounting requires the consent of the Commissioner
and can not be revoked without the consent of the Secretary. Though there is no publication
specific to day traders, the details for traders in securities and commodities are
covered in Internal Revenue Code Section 475 (f) and Revenue Procedure 99-17.
References:
If you have run a small business in the past, but this year there is no
income or expenses, is it necessary to file a Schedule C?
If your sole proprietorship business is inactive during the full year, it is not
necessary to file a Form 1040, Schedule C (PDF), Profit
or Loss from Business, for that year.
References:
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