SE Tax?

[S T]

Tax Book Editors

This is a subject that comes up quite often. How are we to handle that occasional 1099 usually nominal (under $1,500) and report on line 21. Subject to SE Tax or not Subject to SE tax.

I know the Tax Book is currently in the printing stages, but this would be a subject matter that has a lot of interest and tax pros/preparers could always use clearer direction.

In conjunction with this 1099 issue and whether to subject to SE or not, is the 1099 issued instead of a W-2, so the employer has not claimed their responsibility and burden for the fica/mcare/futa and appropriate state payroll taxes.

Discussions have been many on this issue as well and also how to handle this event. Something to the effect of placing the 1099 amount on line 21 and attaching the 4137 to at least tax the employee share of the payroll taxes on the form 1040.

Other than through questions and answers of the taxpayer and our intuition, how are we to discern these issues?

If these issues are not addressed in the new TB for 2004 filing, it might be worthwhile to add them to the list for the 2005 TB.

Just some thoughts!

Sandy

[S T]

Computer Matching

Jainen, while I generally agree with your statement, if you don't indicate the amount of the 1099misc on the return, it will generate a computer matching notice from IRS.

Yes, use line 21. I've always thought that many of my colleagues give far too much weight to what a 1099 says. It isn't some kind of holy writ. The purpose of a 1099 is to support the issuer's tax return. Even if it isn't a flat-out lie it can't characterize funds in the hands of the recipient. Another problem I often see is 1099's including a check issued (or backdated) December 29 but received in the new year. Report your income from your own records.

How do you resolve that issue?

Sandy

[jainen]

records

It is not an issue that needs to be "resolved." If the business maintains proper records such as a ledger, invoices, and bank statements then you use that. This is what the law calls for so if the IRS has a question then you can deal with it. When the client doesn't keep records then of course you use the 1099 but it is not automatically required for supporting business income under any standard accounting or tax procedures. Although much less common the same situation applies to W-2's. You can file without one, or with an erroneous one, and you can file Schedule C on W-2 earnings.