Discussion:Box 3 or 7 on 1099-misc
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Discussion Forum Index --> Tax Questions --> Box 3 or 7 on 1099-misc
| 1 February 2007 | |
| A settlement was paid to a non-employee for a patent infringement. What box does this go in? | |
1099ez.com (talk|edits) said: | 1 February 2007 |
| Your question is a little vague. Did you have an agreement to stipulate this is a compensatory damage? Anyway, let me stick my neck out a little by saying the following: Generally, almost all compensatory damages for this kind of settlement is reported under Box 3 (other Income). | |
| 1 February 2007 | |
| I don't know. I just do this company's general accounting and issuing 1099's is part of it. Right now it's sitting on my desk and the amount is in box 7. I felt this would be the "safer" thing to do in case nobody replied. It's already past the post office pick up time so I'll mull your suggestion over only becasue I once had someone bring in one of these and the payor used box 3 for his photography service and it just created a little jolt in processing his 1040/Sch C.
Thank you for the insight and hope to speak with you again. Well maybe not, that would mean I might be in the wrong business LOL. | |
| 6 March 2007 | |
| I received a 1099 MISC with Income in Box 3. I am fully employed by a company but did some work on the side for a friend. I do not have a business license, etc. and do not have any kind of incorporation. How do I report this income? Do I put it on Line 21 of the 1040 or fill out a Schedule C-EZ?
Any help would bre gratly appreciated. | |
Inagpurwala (talk|edits) said: | 6 March 2007 |
| RAF: If it was ONE TIME SHOT, then put on line 21. Otherwise you should use Sch C.
IshaqInagpurwala 16:26, 6 March 2007 (CST) | |
| 7 March 2007 | |
| "A settlement was paid to a non-employee for a patent infringement. What box does this go in?"
1099ez.com is right, report them in box 3 of Form 1099-MISC as "other income". Since the damages are most likely a replacement for the royalties the non-employee would have received, they are considered ordinary income to him so reporting the damages in box 7 of Form 1099-MISC would be incorrect. He would report the income on Schedule E, line 4. | |
| 7 March 2007 | |
| Awards go to Box 3, Compensation to Non-employees go to Box 7. Entries in box 3 is ordinary income. Entries in Box 7 is earned income, taxable by both ordinary tax rates and social security. | |
| 10 March 2008 | |
| Hi-
I have a situation with my Tax preparation software that I am not sure what to do with. I completed some graphic design work for a place last year, as "contract labor". They sent me a 1099 form with the total dollars I was payed reported in box 7. However, I do not own a business, and I am not incorporated or anything. I do not have a business ID number, etc. When I try to claim the income in the Tax prep software I am using, it asks me for my Business ID number. When I tell it that I do not have an Business ID number, it tells me that it should be reported in Box 3 instead, and to contact the Employer to have it changed. I called the employer this morning to ask them to change it and send me a new 1099 reflecting the amount in box 3, but they refuse to change it stating that it was reported in the right place as far as they could see. What should I do? | |
| 10 March 2008 | |
| LauriLou--
If you did contract work you legally ARE a business. If taxes are taken you are an employee. There is no third category. Contact your software company about how to enter Schedule C income without a tax ID number, it shouldn't be stopping you from entering the data. The 1099 doesn't need to be changed, that's incorrect. There is no legal requirement to have a tax ID number to be a business. | |
| 10 March 2008 | |
| Okay, so am I understanding that I have to pay the $500 that my tax prep software is tacking on as a "business tax" too, simply because I did a couple of things from home for them instead of being "employed" by them and filling out employment forms?
Even though I am not legally a business I have to pay business taxes? I thought this would just be reported as "earned income" when I did my taxes, and I would pay whatever taxes I owed on the income, NOT on a business! Wow, if I had known that I would have to become a business to help them out, I would've said no way! It is hardly worth it for what I was paid! Thanks for responding.
| |
Actionbsns (talk|edits) said: | 10 March 2008 |
| LauriLou, try entering you SSN where it asks for the Business ID number. Often a small business such as yours doesn't have a need for an EIN and may never get one until they get employees. If that doesn't work and this is the only 1099 you received, enter it on the 1040, Line 21 as Miscellaneous Income and mark the form to have self employment taxes taken or force the Schedule SE. You don't say what software you are using. | |
| 10 March 2008 | |
| Oh, sorry.
It is one of those boxed software packages that are supposed to help you with your taxes. I am not at home to look right now, but I think it was "TaxCut". So, by entering it on Line 21 of my 1040, I am still paying the taxes then, right? I definately want to pay what I owe in taxes for what I earned, (but don't feel I should have to pay "business taxes" on a non-existant business - I never meant to have a business at least). Thanks for the help! | |
| 10 March 2008 | |
| LauriLou, you are not paying a "Business Tax" on your income. You are paying your Social Security and Medicare taxes that were not withheld by your "Employer". You ARE the employer and you should be reporting the income on Schedule C - Sole Propritorship. You are being asked for the "Business" you are in, but the number you are asking about is the "Business Code", not an EIN - Employer Identification Number. You should be able to get that number by placing your curser in the field and then hitting the F1 key for "Help". | |
Actionbsns (talk|edits) said: | 10 March 2008 |
| Laurilou, people get in a flumux about "business taxes". In general, there is no such thing. You do have to pay self employment taxes, in other words FICA and MC on this income, "business" or not. Using Line 21 will avoid the need for the Schedule C, but you need to be sure that the software has a box to mark that says "Calculate self employment tax" which will trigger Schedule SE. If it doesn't you need to force the Schedule SE and be sure it is transferring over to the 1040 both as an additional tax on page 2 and half of it as a credit on page 1. You should be able to tweak both of those if the software doesn't take care of it for you. I would try entering the SSN first, it might be easier and take care of each of the other issues. If you live in an area like Hawaii, you may have some kind of state mandated tax to pay that doesn't have anything to do with the state and federal income taxes. We have GE Tax (comparable to sales tax) that everyone who earns any kind of income has to pay, with a few exceptions, quid pro quos, and special allowances. | |
| 10 March 2008 | |
| Lauri, you are way in over your head. Get paid professional tax help, it will save you money and stress in the end. I promise. | |
| 10 March 2008 | |
| Lauri,
I just went into my TaxCut and What you want to do is go to the "INCOME' section, select "Your Own Business- Scheduel C- "GoTo", "Add Business, select the down arrow at "Business Catagory" to find the type of business you did, the select the "Business Code" from the available items. You can then go back and identify the specific business you did such as Consulting or whatever. | |
| 10 March 2008 | |
| Yes, I got that already. The Business Code was listed there, and I already put that in.
However it does ask for the EIN also, and I don't have one! It sounds like I can just put in my SS# though for that though... What I am referring to as a "business tax" is the $500 the TaxCut software package automatically added on to my taxes owed on my return when I said that I had income listed in Box 7 of the 1099 form I received. If I said I had $0 in box 7 (and thought about it being put in Line 3 instead as "Other Income"), it took back away the $500 it had added on automatically. I am probably mistakenly calling it a "business tax", but in essence that was what it appeared to be when I saw it added on. So, the $500 is a lump sum that is being charged to me as the "Employer" for having an "Employee" (myself), and it is for my own Social Security & Medicare payments from my "Employer" (myself)? So, will that $500 then show on my Social Security and Medicare statements somehow? ...or am I supposed to be turning that in to somebody, somehow for my "Employee" (myself) too? This is just CRAZY how difficult this is becoming just for a little side work! You guys are great for trying to help me, thanks! | |
| 10 March 2008 | |
| Yes, Kevin, I think you may be right about how it might save me the headache, and if I had known it would be this much of a hassle, I would have!
However, I went and bought this $50 software that is supposed to walk me through it, and I don't earn enough to just drop that now and pay someone to do my taxes for me this year also! Maybe if I really did own my own business, I could afford a tax person... Hence, the questions here. So, thanks for helping me understand the tax issues everyone! I really think I can work through it okay, I just want to be sure I am doing it right. | |
| March 10, 2008 | |
| Laurilou, you also need to consider if you have some expenses to deduct from that 1099 income such as supplies, possibly mileage, office expenses, etc.....those will reduce the gross income and save a bit on income taxes and the self-employment taxes. Good luck, you are NOT the first one to get caught up in this issue. | |
| 10 March 2008 | |
| Yes, Belle. Thanks for the suggestion.
I guess if I HAVE to claim I have a business, I will then take a hard look at all my receipts for the year for everything, and determine what portion if the house payment can be taken as a home office, what part of vehicle expenses can be claimed, the computer expenses for internet, etc. etc. Thanks again everyone for all your help! | |
Actionbsns (talk|edits) said: | 10 March 2008 |
| Laurilou, I'm not sure that $500 is automatic. If you have additional income, you will also pay additional income taxes and it will boost your liability. You don't say how much money is on the 1099, so it's hard to say whether the increase is a combination of the self employment taxes and additional income taxes, but in the end you are going to have additional taxes to pay, you have additional income and that's the result. If you do a Schedule C, Belle's suggestions is a good one because each legitimate expense you have reduces your net income and that is what is subject to self employment taxes. Be careful in this arena though, you may very well be over your head especially if this was a one time only job, you need to be looking at the expenses related to the work you did. | |
| March 10, 2008 | |
| And I would question the Office In Home - has to be used regularly and exclusively. A one time consulting gig is unlikely to qualify. | |
| 10 March 2008 | |
| The total for the year earned from them was $4000.
It was earned in 3 separate checks (I did 3 different seasonal activity guide/newletters for them over the year, and provided them to their printing company for them via email/FTP site, and also provided the originals back to them for posting on their website in PDF format, etc.). Each season I went and met with them in person to pick up hard copies of the materials for that season, and go over it with them. The drive is 50 miles each way to their offices and back home. So, there would be vehicle expenses each way for mileage at least. Then, I worked on it from home on my own computer, supplying them with proofs along the way on emails/FTP through my internet connection. Then, I would mail them a hard copy of the completed document, along with it burned on CD for their files. So, there would be printing and CD costs too, if I am claiming expenses. This was about 80 hours of "labor" on my part each season x3 for a total of approximately 240 hours of labor from home = $4000 paid. Do you think it is worth itemizing my expenses for this since I HAVE to claim I was a business to earn the $4000? | |
Actionbsns (talk|edits) said: | 10 March 2008 |
| Your costs seem minimal, but it's up to you and how good are your records? Trying to figure out how much of your internet fees apply to this job would be rather tedious and CD's are so cheap now. But you need to make that decision. As for the $500, I just did a rough calc of SE tax on $4,000 and it's $499.50, rounded up it's $500. It wasn't automatic, it's what the SE tax is. | |
| 10 March 2008 | |
| I do have a dedicated office (was a spare bedroom) at my house with two fully functioning Computers on desks, printers, scanner, bookcase, etc. That is where I do anything computer related, and did the work for them each season.
I did not create the office space for a business intentionally, but it ended up that way. Originally it was just for internet for me and gaming for my husband. | |
| 10 March 2008 | |
| Lauri, it is clear that you don't know what you are doing. Get paid help NOW. We are busy with paying clients and don't have time to do your return for free just because you don't want to ask Tax Cut how to do them.
Go ask your box. | |
| 10 March 2008 | |
| Oh okay, well thanks for figuring that SE amount up for me.
I just thought that if I had to claim this as a business, I should take any deductions I could rightly claim. I would not try to claim a penny more than I should in any case. No worries. I just still can't believe I am now a business just for helping them with some side work like that last year! So, now I need to "disolve" the company in 2007 also, right? I mean, how is this going to effect my tax return next year to claim this as a business this year? | |
| 10 March 2008 | |
| Note to tax pros: you do realize that you are considered a paid preparer for her return if you help her do a calculation, don't you?? I hope your E & O is paid up. | |
| 10 March 2008 | |
| and you know I'm just trying to help her and you to do the right thing. | |
| 10 March 2008 | |
| My Keven, aren't you nice?
If you are so busy helping paying clients, then why are you on here reading this and responding at all? Last I checked, it was free to sign up and ask questions here. So, who on here is paying you for help? Is there somewhere I should be offering to pay you at for your help? Afterall, isn't that what the internet is for? To look up information for free? | |
| 10 March 2008 | |
| I would be happy to go to a professional if I could afford it.
I saw no harm in asking a few simple questions here. Thank you all for your help. It was very nice of you to try to help another person who was just a bit confused. Kevin- Nobody here did anything for me, they just helped me to understand a few questions I had, that's all. I am not way over my head here, and just wanted to get a few opinions, that's all. | |
| 10 March 2008 | |
| LauriLou, Kevin is not being mean...you just said that you were over your head (even if only a little bit)...that means that it is going to be worth it to you to spend a little more money and get a professional to do your return. If for nothing other than your piece of mind. What Kevin is talking about is OUR liability for giving you advice, which may or may not work in your situation because we are only looking at a small piece of your return...the part you want to give us. Without the whole picture we don't know if you are paying the correct Self Employment taxes (the correct terminology) or not. My opinion, you can afford a tax preparer now much easier than you can afford one after the fact when IRS decides to do an audit. | |
| 10 March 2008 | |
| PLUS, Lauri, this is NOT a free place for laypeople to ask questions, it is a free place for tax professionals to ask questions. So leave. | |
| 10 March 2008 | |
| for tax pros who doubt that you could be on the line, read Reg 301-7701-15 | |
| 10 March 2008 | |
| Yes, I can see his point about that.
I was just asking a few simple questions, since I did buy that software (which I have used in previous years with no problems) again this year. Had I known I was going to have to claim the 1099 dollars in box 7 as a business, I would not have hesitated to hire a professional to begin with, and not purchased the software this year at all. I am not trying to take anything away from the professional tax preparers here for helping answer a few questions. I meant no harm in asking a few questions either. I would not take anything said here literally, and I will be diligent in doing my own research before taking anything said here as "word" either. I did read the disclaimer on this site before signing on and posting afterall... and I also saw in the upper left corner of the site where it says "A Free Online Resource", so I thought that it was okay to ask a few questions. However, I did feel it was mean to say things like "Ask your damn box" to me. I am not asking anyone here to do my return for me. I was just a bit confused, NOT over my head. | |
| 10 March 2008 | |
| Kevin- Then maybe there should be a requirement when you sign up to post here that you must provide some sort of tax preparer's ID or something to gain access?
How would the general person (like me) who types into Google "1099 Box 3 vs Box 7" and gets to this site know that it is ONLY for professional tax preparers? | |
| 10 March 2008 | |
| Lauri -- you can return the software...and if you can't -- trust me the cost will still be cheaper now getting the professional than waiting to get one when IRS decides to send you a notice saying they want to do an audit. I won't answer on only what you have given me because I have no clue what the rest of your return looks like. Kevin is just trying to warn the rest of us to be on our guard it's a liability issue. | |
| 10 March 2008 | |
| Yes, but he has been VERY rude!
I had no idea that this site was ONLY for professional tax preparers, and now I feel like I should apologize to all of you for taking your precious time today asking a few questions. I think there should be some screening at the front end of the site to stop the "layman" from using the site if this is what happens! I had no idea that your helping me would cause any problems. Thanks to all of you who were nice to me and answered my inquiries. | |
| 10 March 2008 | |
| Lauri, if you had asked a new question, you would have been asked to state that you are a tax preparer. You got in through the back door, which is a problem for us all. I do not mean to be rude, I mean to save you time and money by telling you to get professional help. If you don't know what you are doing, you are likely to mess up and the cost of fixing it is about twice the cost of doing it right with a paid professional from the get-go. | |
| 10 March 2008 | |
| Well, that makes sense then, since I typed a general quiry into Google and it brought me to this...and then when I signed up to post here it didn't say anything then about having to be a tax professional either.
I was simply posting in the thread that had to do with my question about 1099's, assuming others posting here were also having issues with the same topic. Thanks again for all the help everyone. | |
Actionbsns (talk|edits) said: | 11 March 2008 |
| Don't go picking on Kevin!!! He's one of our favorite and most knowlegeable contributors here. Your question is rather basic, you got the basic answer and you don't like it. We see this all the time. It's not Kevin's fault or anyone elses. Anyway, I have to go figure out this darned Indirect Cost Allocation spreadsheet and I don't have any more time for this question. Unless Lauri, you could help with that? Only kidding. | |
| 11 March 2008 | |
| People here are so nice to deal with...and they wonder why I bought a box to begin with?
I am not dis-satified with the answers I received here. I am fine. I was only dis-satisfied with the responses thet Kevin was giving me when he was rude to me for no apparant reason (before I reallized that this site was only for professional tax preparers). Now that I am aware of the status of the posting members here, I intend to no longer take any of your time. Again, thanks to those of you that were nice enough to answer my simple questions. | |
