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1099-MISC, Independent Contractors, and Self-employed

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My son is a newspaper carrier. I would like to know if this income is subject to social security tax and if I must file a Schedule C for him?

Your son may be liable to pay into the Social Security system by paying self-employment tax. However, if your son is under the age of 18 he exempt from self-employment tax. Persons engaged in the trade or business of delivering or distributing newspapers or shopping news (including any services directly related to such delivery or distribution) are considered by statute as nonemployees and are treated as self-employed for all Federal tax purposes, including income and employment taxes.

Independent contractors report their income on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship), or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net Profit from Business. See Form 1040, Schedule SE (PDF), Self-Employment Tax, which must be filed if net earnings from self-employment are $400 or more. If your child is a newspaper carrier under the age of 18, he is exempted from self-employment tax. See Publication 533 (PDF), Self-Employment Tax. This form is used to figure your social security and Medicare tax which is based on your self-employment income.

References:

I work as an independent contractor, but I do not own a business and do not perform services in the name of a business. Can I file my tax return without filing Schedule C or Schedule SE?

The income you earn as an independent contractor generally will be considered income from self-employment and you will need to file Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship), or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net Profit from Business. You will also need to file Form 1040, Schedule SE (PDF), Self-Employment Tax, if you had net earnings from self-employment of $400 or more.

References:

I received a Form 1099-MISC from a company that paid all employees this way. Will my income go on line 21 of Form 1040 as Other Income or on Schedule C?

Since your income was reported to you on a Form 1099-MISC, the company has treated you as an independent contractor and your income is treated as self-employment income. You will need to report that income, and any related expenses, on Form 1040, Schedule C (PDF), Profit or Loss from Business, or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net Profit from Business. You will also need to use Form 1040, Schedule SE (PDF), Self-Employment Tax, to compute and report your Social Security and Medicare tax, if you had net earnings from self-employment of $400 or more. You may also need to make quarterly estimated tax payments. You would use Form 1040ES (PDF), Estimated Tax for Individuals, for this.

If you feel that you were an employee and not self-employed, you can file Form SS-8 (PDF), Determination of Employee Work Status for Purposes of Federal Employment Taxes. This will enable the IRS to make a determination as to whether you are an employee or an independent contractor. To do this the IRS will need information from you and your employer.

For information about determining whether you are an employee or an independent contractor, please see Chapter 2 of Publication 15A (PDF), Employer's Supplemental Tax Guide.

References:

10.2 Captial Gains, Losses/Sale of Home: Stocks (Options, Splits, Traders)
I buy and sell stocks as a day trader using an online brokerage firm. Can I treat this as a business and report my gains and losses on Schedule C?

A business is generally an activity carried on for a livelihood or in good faith to make a profit. Rather than being defined in the tax code, exactly what activities are considered business activities has long been the subject of court cases. The facts and circumstances of each case determine whether or not an activity is a trade or business. Basically, if your day trading activity goal is to profit from short-term swings in the market rather than from long-term capital appreciation of investments, and is expected to be your primary income for meeting your personal living expenses, i.e. you do not have another regular job, your trading activity might be a business.

If your trading activity is a business, your trading expenses would be reported on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship) instead of Form 1040, Schedule A (PDF), Itemized Deductions. Your gains or losses, however, would be reported on Form 1040, Schedule D (PDF), Capital Gains and Losses, unless you file an election to change your method of accounting.

If your trading activity is a business and you elect to change to the mark-to-market method of accounting, you would report both your gains or losses on Part II of Form 4797 (PDF), Sales of Business Property.

A change in your method of accounting requires the consent of the Commissioner and can not be revoked without the consent of the Commissioner. Though there is no publication specific to day traders, the details for traders information for securities and commodities is covered in Internal Revenue Code Section 475(f) and Revenue Procedure 99-17 and Rev. Proc. 99-49.

References:

Is there any publication that explains the proper way to file a Schedule C as a day trader?

Publication 550 (PDF), Investment Income and Expenses, which is specific to traders, includes a section titled Special Rules for Traders in Securities.

Internal Revenue Code section 475(f) and Revenue Procedure 99-17 apply only to traders who elect to use mark-to-market method of Accounting.

References:

  • Publication 550 (PDF), Investment Income and Expenses
  • Publication 535 (PDF), Business Expenses
  • Form 3115 (PDF), Application for Change in Accounting Method
  • Internal Revenue Code section 475(f)
  • Revenue Procedure 99-17

12.2 Small Business/Self-Employed/Other Business: Form 1099-MISC & Independent Contractors
I received a Form 1099-MISC from a company that paid all workers this way. Will my income go on line 21 of Form 1040 as Other Income or on Schedule C?

If your income was reported to you on a Form 1099-MISC, in box 7, the company has treated you as an independent contractor and your income is treated as self-employment income. You will need to report that income, and any related expenses, on Form 1040, Schedule C (PDF), Profit or Loss from Business, or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net Profit from Business. You will also need to use Form 1040, Schedule SE (PDF), Self-Employment Tax to compute and report your social security and Medicare tax. You may also need to make quarterly estimated tax payments. You would use Form 1040ES (PDF), Estimated Tax for Individuals, for this.

References:

I work as an independent contractor, but I do not own a business and do not perform services in the name of a business. Can I file my tax return without filing Schedule C or Schedule SE?

The income you earn as an independent contractor generally will be considered income from self-employment and you will need to file Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship), or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net Profit from Business. You will also need to use Form 1040, Schedule SE (PDF), Self-Employment Tax, if you had net earnings from self-employment of $400 or more. Since there is no withholding on your self-employment income, you may need to make quarterly estimated tax payments. This is done using a Form 1040ES (PDF), Estimated Tax for Individuals.

References:

12.8 Small Business/Self-Employed/Other Business: Schedule C & Schedule SE
I am self-employed. How do I report my income and how do I pay Medicare and social security taxes?

Your self-employment income is reported on Form 1040, Schedule C (PDF), Profit or Loss from Business, or on Form 1040, Schedule C-EZ (PDF), Net Profit from Business.

Your Medicare and social security taxes are reported on Form 1040, Schedule SE (PDF), Self-Employment Tax.

As a self-employed person, you pay your Medicare and social security taxes the same way you pay your income taxes. If you expect to owe less than $1,000 in total taxes, you can pay them when you file your income tax return. If you expect to owe $1,000 or more in total taxes, you will need to make estimated tax payments. These payments are made quarterly using Form 1040ES (PDF), Estimated Tax for Individuals. You will need to figure these taxes at the beginning of the year. To learn about figuring and making estimated tax payments, please refer to Publication 505 (PDF), Tax Withholding and Estimated Tax.

References:

I am a sole proprietor. Can I use Schedule C-EZ instead of Schedule C?

You can use Form 1040, Schedule C-EZ (PDF) to determine your net profit if you have only one sole proprietorship and you meet all of the following requirements: your business expenses were not more than $2,500, and you did not have a net loss from your business, you use the cash method of accounting, and you did not have an inventory during the year. There are other requirements. Refer to page 1 of Schedule C-EZ to see if you qualify. Additional information is also available in Tax Topic 408, Sole Proprietorship.

References:

I buy and sell stocks as a day trader using an online brokerage firm. Can I treat this as a business and report my gains and losses on Schedule C?

A business is generally an activity carried on for a livelihood or in good faith to make a profit. Rather than defined in the tax code, exactly what activities are considered business activities has long been the subject of court cases. The facts and circumstances of each case determine whether or not an activity is a trade or business. Basically, if your day trading activity goal is to profit from short-term swings in the market rather than from long-term capital appreciation of assets, if your income is primarily from the sale of securities rather than from dividends and interest paid on securities, and if you expect this income to be your primary income for meeting your personal living expenses, i.e. you do not have another regular job, then your trading activity might be a business.

For details about not-for-profit activities, refer to Publication 535 (PDF), Business Expenses. That chapter explains how to determine whether your activity is carried on to make a profit and how to figure the amount of loss you can deduct.

If your trading activity is a business, your trading expenses would be reported on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship), instead of Form 1040, Schedule A (PDF), Itemized Deductions. Your gains or losses, however, would be reported on Form 1040, Schedule D (PDF), Capital Gains and Losses, unless you file an election to change you method of accounting.

If your trading activity is a business and you elect to change to the mark-to-market method of accounting, you would report both your gains or losses and your trading expenses in Part II of Form 4797, Sale of Business Property. See Publication 550 (PDF), Investment Income and Expenses, for details.

A change in your method of accounting requires the consent of the Commissioner and can not be revoked without the consent of the Secretary. Though there is no publication specific to day traders, the details for traders in securities and commodities are covered in Internal Revenue Code Section 475(f) and Revenue Procedure 99-17.

References:

If you have run a small business in the past, but this year there is no income or expenses, is it necessary to file a Schedule C?

If your sole proprietorship business is inactive during the full year, it is not necessary to file a Form 1040, Schedule C (PDF), Profit or Loss from Business, for that year.

References:

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