Client has an insurance business. She receives a statutory W-2 as well as several 1099-MISC's. How do I allocate the earnings and expenses so that the 1099 net income is subject to SE tax but the W-2 income is not subject to SE tax?
-
-
Simply by using two schedule c's.Originally posted by bruehaus View PostChEAr$,
Harlan Lunsford, EA n LA -
Silly question--how do I allocate the expenses between the two Schedule C's? It's the same business with multiple sources of income.Comment
-
Allocate the expenses by the ratio that the 1099 income bears to the total income. Do the same for the W-2 income. Create two Schedule C's, one which you notate is your statutory income. Put ALL of the expenses on one Schedule C. Then, using your allocation, take the % of expenses off of one to the other.
I attach a worksheet, showing the allocation. I do not reenter every expense on the second Schedule C.
The first Schedule C will have a reduction in expenses notated as something like "expenses allocated to statutory income" and the second Schedule C will only have one line item notated as something like "expenses allocated from Schedule C#1".
MaribethComment
-
I had the same issue. My tax program would not allow the W-2 income to be put on the separate Schedule C without any expenses. So I transfered $500 from the 1099 schedule C to the W-2 schedule C. All worked fine without all the allocation trouble. Short cut,Yes. Does it matter, No.This post is for discussion purposes only and should be verified with other sources before actual use.
Many times I post additional info on the post, Click on "message board" for updated content.Comment
-
It will matter for SE tax. The expenses allocable to the W-2 income cannot reduce the SE income. Been through an audit on this one.
MaribethComment
-
Hum.... When the W-2 in entered at the W-2 screen it is marked as a statutory employee. On the Schedule C it is also marked as a Statutory employee. this makes the schedule C profits not subject to SE tax because the W-2 has paid SS& Med taxes already. My SE shows the W-2 income on it.Originally posted by Maribeth View Post
So why would it matter what the W-2 Schedule C says towards the SE calc.This post is for discussion purposes only and should be verified with other sources before actual use.
Many times I post additional info on the post, Click on "message board" for updated content.Comment
-
As I used to tell my accounting students, "The secret of success in accounting is
Allocate, allocate and pro rate."
But simply allocating between the two schedule c's in OP's case may not be completely correct. One just can't assume that all expenses are directly attributable to both types of income.
Set up each schedule c and first attribute direct expenses to that stream of income.
Other common expenses then may be allocated.ChEAr$,
Harlan Lunsford, EA n LAComment
-
I do these all the time. You allocate certain expenses to one or the other depending on whether they apply to each. You pro-rate those expenses which cannot be divided or determined to be solely applicable to one. Auditors accept this method and I have never had a problem. It usually always involves insurance agents.Comment
Comment