NO SE Tax On Temporary Job

[dtlee]

I agree that all facts and circumstances must all be taken into consideration in determining if an activity is a business or hobby activity. The regulations and audit guide that the IRS released within the past few years are likely what Dyne was referring to and they both emphasize this. I agree that the mere fact that an activity has only occurred once does not automatically make it exempt from self-employment tax, but likewise, the mere fact that an activity has occurred twice does not automatically (nor retroactively) make it subject to self-employment tax.

In §1.183, they give the following example:

The taxpayer is a wealthy individual who is greatly interested in philosophy. During the past 30 years he has written and published at his own expense several pamphlets, and he has engaged in extensive lecturing activity, advocating and disseminating his ideas. He has made a profit from these activities in only occasional years, and the profits in those years were small in relation to the amounts of losses in all other years. The taxpayer has a very sizable income from securities (dividends and capital gains) which constitutes the principal source of his livelihood. The activity of lecturing, publishing pamphlets, and disseminating his ideas is not an activity engaged in by the taxpayer for profit.

[Bees Knees]

In §1.183, they give the following example:

Section 183 is the hobby loss rules. The hobby loss rules deal with whether or not you can deduct expenses that exceed income.

Section 1402 is the Self Employment rules. Section 1402 deals with whether or not an activity is subject to self employment tax.

You run a huge risk if you think the two code sections are consistent and compatible with each other. They are not. The only purpose for Section 183 is to disallow a loss. For example, assume an activity loses money 4 out of every 5 years. The activity is a hobby, unless the taxpayer can show by other facts and circumstances it is a business. Assume the taxpayer has lousy records, doesn't really have much expertise to do the job, and only does it one day per week. His wife works full time and basically makes enough to support the family. He sits on the couch the rest of the week watching TV.

IRS rules it is a hobby. He cannot deduct the losses.

Now let’s take the same set of facts and circumstances, only this time he nets $2,000 per year in profits. Never shows a loss. Same lousy records, same lack of expertise, only does it once per week, sits on the couch watching TV the rest of the week, wife makes majority of income.

Is it a hobby, not subject to SE tax? Of course not. It is his only activity besides watching TV. He makes a steady profit. It is regular and continuous. And he has been doing it forever.

The point is, the two code sections apply to two different tax issues. The facts and circumstances used for one code section are not the same facts used for the other. You can’t use Section 183 to prove it’s not subject to SE tax under Section 1402.

[snowshine]

What the client thinks about the subject matters because it is their money and their tax return. We are discussing one of many gray areas in taxes where the facts do not neccesarily delineate clearly between choices. What my client wants matters greatly to me in these matters (and I keep copious notes of the discussions.)

[Davc]

I also have a systems analyst who writes romance novels on the side. Her income goes on Line 21. Facts and circumstances control and are different every time.

How many does she have to write before you consider it a business?

[taxea]

WHAT is the AUTHORITY that states that NO self-employment tax is due on short-term,
or non-recurring or temporary jobs, etc? It was an IRS ruling but I cannot find it now.

It isn't a ruling. It is somewhere in Pub 17, the instructions for Sch C (I think). I have used the wording several times, though not receintly it goes something like this:
not engaged in self-employment in a consistant or continual manner.

As for Sch C don't forget that if he has intent of gainful income this may not be a hobby. Of course I would say that if he has been paid more than once a year or a substantial amount for his writings over a relatively short period then it should be Sch C and subject to SE.