Can I amend prior returns? I received a 1099-MISC (residual commissions from prior sales job). I was not in business. Turbo Tax generated a Schedule C.

[prullan]

The 1099-MISC was an agreement with my prior employer. I would be paid for 5 years after leaving. I wound up in a different field, and I never had any employees, nor did I ever intend to. I was told the having a Schedule C was the right thing to do, even though I found it strange. I have no write-offs, so I think I've been paying self-employment tax unnecessarily. Any thoughts?

[Hal_Al]

Yes, you should be able to amend. Schedule C is not appropriate for most "residual commissions" and self employment tax is not due.  See the conditions at the references. 

References:

https://ttlc.intuit.com/questions/1151879-retiree-trailing-commissions-self-employed-income

http://wanderingtaxpro.blogspot.com/2008/01/ask-tax-pro-residual-commisi0ns-paid-to.html

TurboTax will treat most 1099-Misc as Sch C, so you may have to use a work around. 

[farhan_ahmad]

I guess I have a similar situation. My wife helped at pre-school in 2017 and part of 2018, she is otherwise a home maker. When I entered 1099-MISC in 2017 return, turbo tax generated Schedule C-EZ and Schedule SE. It sounded strange but I went with what Turbo tax was doing and was a bit scared of any tax evasion. This year I found the post which shows the workaround on how to report that as other income in line 21.  Is it complicated to fix that mistake by amending 2017 return via Turbo tax or do I have to seek professional help?

[Hal_Al]

@farhan_ahmad  - 

The IRS considers anything in box 7 of 1099-MISC to be self employment income. TurboTax (TT) aggressively steers you in that direction. If you try reporting box 7 income as anything else, you chances of hearing from the IRS are very high.

The fact that your spouse did the same work in both 2017 and 2018 means it probably should be reported as self employment.  But, if audited, you might be able to argue that even though it was 2 tax years, it was only one school year, so it may qualify for the "one time gig" exception to be self employment.

Amending is mildly complicated. It goes easier using the 2017 software, but can also be done with the current year software. 

How to amend https://ttlc.intuit.com/questions/1894381-how-to-amend-change-or-correct-a-return-you-already-filed

[farhan_ahmad]

@Hal_Al thanks for your prompt response.  Yes, it was one school year thing and may be not even the full year but it did started in 2017 and finished in 2018. In both 1099-misc she received, the income was reported in box 3 not box 7. It's only now that I am finding how to report that box 3 income so that Turbo tax does not generate schedule C. My wife does not run a business and so I believe the 2017 return was filed incorrectly and we end up paying more taxes that we should have. I tried putting it both ways in 2018 return and when reported as self-employment we have have to pay $232 more. In 2017 she got more income on 1099-misc so roughly we have paid around $400-$450 more.

The questions are:

1) If I report on line 21 as other income in 2018 return when  in 2017 the same thing "helping at pre-school" was reported as self-employment then wouldn't it trigger an audit even if I do not file amendment for 2017?

2) If I do file amendment for 2017 would it be more trouble in case of audit? In 2017 return when Turbo tax steered me towards self-employment it asked may questions about business expenses and I did put some (don't recall exactly what but it was like 10% or less of the total income). My only concern is I put rough estimates for expenses and I do not have receipts for those.

So I feel at I've risk of audit either way. The only other way I can think of is to repeat the mistake and again report as self-employment and pay $234 more in taxes. 

Any suggestions?

[Hal_Al]

The IRS considers anything in box 7 of 1099-MISC to be self employment income. TurboTax (TT) aggressively steers you in that direction, even if the amount is in box 3.  That's how you ended up with Sch C-EZ and Sch SE for 2017.

Reporting it on line 21, for 2018 should not  trigger an audit.  You cannot deduct any expenses if you report it on line 21, instead of Sch C (or C-EZ).  So if you do amend 2017, you will have to omit the expenses**, but saving on the self employment tax should be more.

That said, the key to getting TT to treat it as other income is to follow these steps:

Enter the 1099-Misc

On the next screen Describe what the payment was for

On the next screen select "none of these apply"

On the next screen select "No it didn't involve work like my main job"

On the next screen select "I got it in 2018" ONLY

On the next screen select No, it didn't involve intent to earn money

TT will put the amount on line 21 of form 1040 as other income

**Technically, you are allowed to deduct expenses for line 21 income,  for 2017 (but not 2018). But that deduction is limited to being a misc itemized deduction, subject to the 2% of AGI threshold. So, an actual deduction is unlikely.

[farhan_ahmad]

Thanks @Hal_Al  again. You are right, because of that TT aggressiveness I ended up paying more taxes and I continued with it thinking better to pay more if not sure. 

I am not concerned with not claiming expenses, that was the question only if I do not file the 2017 amend. Because in that case I might have to show receipt of expense in case IRS detect the discrepancy that 2017 it was self-employment with business expenses and 2018 it was other income (lots of ifs). 

So in summary the right thing to do is to file 2018 1099-misc as other income following your steps. And later file amend of 2017 to claim more refund, right? 

Would it be an issue that if I do 2017 amend lets say next in a month or two after doing some more research or seeking help on doing it right? (I know technically I have 3 years from filing date) OR I rather not take chances and file amend as soon as i am done with 2018 and before IRS detect the discrepancy with prior year return?

[Hal_Al]

Yes,  file 2018 1099-misc as other income.  You're safe since the income is in box 3.

The timing on when you amend 2017 doesn't matter, as long as you meet the 3 year rule.  

[farhan_ahmad]

Excellent. Thanks @Hal_Al for your help.