1 of 32

Business Income�Intermediate

​

Rick McIntosh

1

NTTC Training 2019-20

2 of 32

Scope & Schedule C

2

NTTC Training 2019-20

3 of 32

Three steps to Business Income

  1. Determine if activity is a business. If Yes, then:
  2. Determine sources of income
  3. Determine expenses – Are they allowable and in scope
  4. Create Schedule C

​

If No, Other Income or Not Income

3

NTTC Training 2019-20

4 of 32

Sources of Business Income

  • 1099-NEC
  • 1099-K (treated as cash in TSO)
  • Cash

4

NTTC Training 2019-20

5 of 32

1099-K -- Is it even Income?

  • 1099-K is usually business income
  • 1099-K are payments made through Third-Party Settlement Organization (TPSO)
    • TPSOs include popular payment apps such as Venmo, Ebay, Paypal, etc.
    • Form 1099-K may be issued in error such as for reimbursements and personal items sold at a loss. These are not considered income
    • You must ask questions about the 1099-K

5

NTTC Training 2019-20

6 of 32

Form 1099-K

6

Block 1a – Gross payments is the only block you need from Form 1099-K

There is no 1099-K look-alike form in TaxSlayer.

You can ignore all the entries for individual months

NTTC Training 2019-20

7 of 32

More 1099K

  • 1099-K may be issued for either business income, other income, or incorrectly issued for personal ‘income’. Regardless of the source, all 1099K income must be reported and accounted for.
  • A 1099-K for sale of personal property at a gain is OOS

​

​

7

NTTC Training 2019-20

8 of 32

There is no 1099-K input form in TSO. Use this button only to report non-income 1099-K

NTTC Training 2018-19

9 of 32

This figure prints at the top of Schedule 1. It has no effect on the tax return bottom line.

NTTC Training 2018-19

10 of 32

10

NTTC Training 2019-20

11 of 32

Summary of 1099-Misc/NEC/K

  • Every Form 1099-Misc/NEC/K (or the value on the form) must be accounted for on the taxpayer’s return. Need to report all income
  • Probing interview is used to properly classify income reported on the Form 1099
  • You may have to report income on a different form in TSO than the paper Form 1099. This is an approved exception to policy
  • If you have entered a 1099-NEC, you must have a Schedule C

​

11

NTTC Training 2019-20

12 of 32

Where to enter 1099 income

Form �in TSO

12

Income�type

Business Income 1099-NEC or Sch C (1099-K)

​

Other Income 1099-Misc, Box 3 Other Income

​

Not income 1099-K input screen

NTTC Training 2019-20

13 of 32

13

The Payer used the wrong form. But, we can fix it.

NTTC Training 2019-20

14 of 32

1099K Quiz

How do we process these different 1099-Ks?

​

  • Sold a personal item on Ebay for a loss
  • Gave a one-time speech. Fee received as direct deposit to checking account
  • Worked as appliance installer as independent contractor for Lowes all year
  • Received reimbursement from friend for half of lunch. Money received as deposit to Venmo
  • Bought Taylor Swift tickets for $1,000, sold them on Ebay for $2,000
  • Pay for umpiring 50 baseball games in 2025

​

​

​

​

​

14

NTTC Training 2019-20

15 of 32

How do we process these different 1099-Ks?

​

  • Sold a personal item on Ebay for a loss�Not income 1099-K input screen
  • Gave a one-time speech. Fee received as direct deposit to checking account. �1099-Misc, Block 3 Other
  • Worked as appliance installer for Lowes as independent contractor all year Business income. Enter on Sch C
  • Reimbursment from friend for lunch. Money received as deposit to Venmo – Not Income
  • Bought Taylor Swift tickets for $1,000, sold them on Ebay for $2,000 – Out of scope
  • Pay for umpiring 50 baseball game in 2025– Business income. Enter on Sch C

�

�

​

​

​

​

​

15

NTTC Training 2019-20

16 of 32

16

Break

NTTC Training 2019-20

17 of 32

In or out of scope for SE?

  • Depreciation on Form 4562
  • Standard mileage rate
  • Employees
  • Beginning of year inventory
  • Business income reported on 1099-K
  • Home office deduction
  • Business meals
  • TP hires a subcontractor
  • Net loss
  • Jointly owned business (TP & spouse 50%)
  • $45,000 expenses

​

​

​

17

NTTC Training 2019-20

18 of 32

In or out of scope for SE?

  • Depreciation on Form 4562 OOS
  • Standard mileage rate OK, in scope
  • Employees OOS
  • Beginning of year inventory OOS
  • Biz income reported on 1099-K OK, in scope
  • Home office deduction OOS
  • Business meals OK, in scope
  • TP hires a subcontractor OOS
  • Net loss OOS
  • Jointly owned business (TP & spouse 50%)OK
  • $45,000 expenses OK, in scope

​

​

​

18

NTTC Training 2019-20

19 of 32

Self-Employed Health Insurance

  • Self-employed health insurance (SEHI) deduction is an adjustment, not a business expense.
  • However, it is entered in TaxSlayer in the general expense area of Schedule C
  • Maximum SEHI deduction is limited to net profit shown on Schedule C reduced by half of self employment tax. It may lower the QBI deduction.
  • Not subject to 7.5% threshold that is on Schedule A – Itemized Deductions

​

​

19

NTTC Training 2019-20

20 of 32

20

NTTC Training 2019-20

21 of 32

Self-Employed Health Insurance

  • Qualifying insurance includes:
    • Coverage for the business owner, spouse, dependents, or the taxpayer’s child under the age of 27 even if not dependent
    • Medicare - Don’t double-count Medicare if itemizing
    • Note: If subsidized health insurance is available, even if not used, Medicare payments may not be deducted
    • Other unsubsidized health coverage if paid with after-tax dollars
      • Includes dental, vision, MediGap, limited coverage, COBRA, young adult and long-term care (LTC) insurance, limited to the age-based cap

This applies to insurance only, does not include other medical expenses

​

21

NTTC Training 2019-20

22 of 32

22

NTTC Training 2019-20

23 of 32

23

This was reported on a 1099-NEC

This was reported on a 1099-K

NTTC Training 2019-20

24 of 32

24

NTTC Training 2019-20

25 of 32

25

NTTC Training 2019-20

26 of 32

Uber note of caution

  • Most Uber drivers earn less than $20,000 but a full-time driver may earn over $50,000.
  • As a result, their expenses from Uber fees may easily total $25,000 and miles driven exceed 50,000.
  • For 50,000 miles @$0.70/mile, the mileage expense will be $35,000
  • Therefore, just mileage and fees expenses would total $60,000 – out of scope.
  • Start checking closely for OOS if mileage value is equal or higher than income, e.g. is mileage is 40,000 and income is only $35,000

26

NTTC Training 2019-20

27 of 32

1099-k Case study

  • ArbiterSports is a program used by sports officials’ organizations for personnel management, scheduling, and payment

TAXAIDE

NTTC Training 2019-20

28 of 32

1099-k Case study

  • Taxpayer worked for two associations – both paid through Arbiter, $10,000 total
  • Income $3,000 from Assoc 1
  • $7,000 from Assoc 2
  • Received $3,000 1099-NEC from Assoc 1
  • $10,000 1099-K from Arbiter

​

​

28

NTTC Training 2019-20

29 of 32

  • If we enter NEC, create Sch C, and add $10K from 1099K, total income claimed is $13,000K, $3,000 more than earned
  • Assoc 1 would not rescind 1099-NEC

​

  • HOW DO WE FIX IT?
  • We must account for all 1099s issued

​

  • What if we add a -$3,000 Other adjustment to drop income to $10,000?

​

​

29

NTTC Training 2019-20

30 of 32

Steps

  • Enter $3,000 1099-NEC
  • Create Schedule C
  • Add $7,000 on Income screen of Sch C as Gross Receipts
  • Add $3,000 on 1099-K screen, incorrectly issued
  • Add Note in TSO and explanation in Miscellaneous Forms, Explanation describing what you did

​

Net

  • All $10,000 income claimed
  • All 1099 reported and accounted for

30

NTTC Training 2019-20

31 of 32

31

NTTC Training 2019-20

32 of 32

32

NTTC Training 2019-20