Converting Sch C to Hobby

[Bees Knees]

Just because box 7 of a 1099 reports income does not mean a Schedule C must be filed. IRS should be able to match that to something reported on line 21 of the 1040. I would put the amount directly on line 21 (net of cost of goods sold). If IRS issues a CP2000, tell them the amount is on line 21, as it is required to be for hobbies.

[Kram BergGold]

How to report 1099

If the amount is reported in box 7 then report the amount on Schedule C and take a corresponding deduction called income from a hobby moving to Form 1040 line 21.

[Gary2]

1. People issuing the 1099-MISC (box 7), particularly under the new rules (and rumored rules), often don't have enough information to determine whether or not the activity is a business or hobby. So there is no rigid rule saying that it must be reported on a Schedule C. However, failure to do so is likely to generate a CP2000 or other letter. There are various tactics to head off the automatic letters, but I'll withhold commenting due to insufficient experience with them.

2. Off the top of my head, you must recapture anything that would ordinarily have to be recaptured if it's subject to the minimum 50% business use rule. But run of the mill depreciation only needs to be recaptured when sold.

3. COGS is factored into the line 21 amount, since it is considered a return of capital. I don't have any citations handy, but I'm pretty sure there's case law to back this up. There was a recent case in which a medical marijuana business in CA was allowed COGS but not other business expenses, under the law prohibiting the deduction of business expenses for trafficking in controlled substances. This case isn't directly on point (since there was no question about the activity being a business), but illustrates the different treatment of COGS.

Or look at it this way: Person A makes silver jewelry as a hobby, and B makes gold jewelry, also hobby, each charging just enough to cover their costs, including tools, etc. They both sell a half dozen pieces a year, A for about $300 gross and B for about $3000 gross, due entirely to the difference in price between silver and gold, but both with a net of +/- $50. You wouldn't expect or want B to be paying ten times as much in taxes, for the same work, simply because of their choice of raw material.

[veritas]

See an excellent example

Client operating a Nu Skin business for 4 years... never made profit... no future profit expected at this time.
I need to convert the Sch C business to a Hobby this year.
Questions:
1. Client receives a 1099... How do I report the 1099 in the tax return... Doesn't the 1099 need to be reported as a business?
2. The Sch C had a depreciation schedule... Do I need to recapture the depreciation?
3. How do I report COGS... Read most of the stuff on IRS.gov... they don't mention deducting COGS on line 21... Has anyone put COGS on the Sch A?

on pg 5-21 in TTB.

[TaxTime829]

Client operating a Nu Skin business for 4 years... never made profit... no future profit expected at this time.
I need to convert the Sch C business to a Hobby this year.
Questions:
1. Client receives a 1099... How do I report the 1099 in the tax return... Doesn't the 1099 need to be reported as a business?
2. The Sch C had a depreciation schedule... Do I need to recapture the depreciation?
3. How do I report COGS... Read most of the stuff on IRS.gov... they don't mention deducting COGS on line 21... Has anyone put COGS on the Sch A?