W2 vs 1099
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DrKLS
Returning Member

W2 vs 1099

I received a W2 that represents my business income.

I also received a W2 that represents my current employment.

I received a 1099 that represents my business income.

 

What is the process to have the W2 that was for business income to be placed in the Business section for my taxes? I have payroll expenses, travel expenses, training expenses, etc. I need them to show as business, not as personal income.

 

Thanks

8 Replies
rjs
Level 15
Level 15

W2 vs 1099

Income on a W-2 is not business income and cannot be entered as business income on your tax return. It's your pay as an employee, just like any other W-2. If you want to be considered a contractor rather than an employee in the future, you have to renegotiate the terms of the relationship with the company that is paying you.

 

Carl
Level 15

W2 vs 1099

I received a W2 that represents my business income.

Please clarify and define *my business income*.  If you own a business that is reported on SCH C as a physical part of your personal 1040 tax return, then under no circumstances does the owner of that business issue themselves any type of tax reporting document (W-2, 1099-MISC, etc.) There are no exceptions.

So what kind of business do you own? S-Corp? C-Corp? Something else?

 

DrKLS
Returning Member

W2 vs 1099

Thanks for the reply.

I own a LLC. I do work for a companies and they pay monthly based on invoicing from my LLC.

At the end of the year, they issued a W2, not a 1099.

 

How do I associated that income for the LLC and not on my personal income?

I have LLC expenses that I need to associate with that income.

 

There is not an option in Turbo Tax to enter a W2 for business income -- at least I cannot find it.

 

Thanks

DrKLS
Returning Member

W2 vs 1099

Ok -- many thanks. 

This was the answer I was hoping would not be the case :). All signs pointed to that case.

 

Thanks -- I will start renegotiating contract terms.

Opus 17
Level 15

W2 vs 1099

It sounds like you were an employee rather than an independent contractor, if you received a W-2. In that case, your expenses are not deductible. Did you have other employee benefits, such as access to group healthcare insurance?  Did the company withhold Social Security and Medicare taxes? You would need to clarify this with them. If you were really an independent contractor and they issued the wrong form, they need to correct it.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
DrKLS
Returning Member

W2 vs 1099

Thanks for the response, I will see if they can reclassify me.

One last question - I had payroll for two employees, rented an office space, and other minor expenses.

Can I still count those on the Schedule C and just do not show income?

Opus 17
Level 15

W2 vs 1099


@DrKLS wrote:

Thanks for the response, I will see if they can reclassify me.

One last question - I had payroll for two employees, rented an office space, and other minor expenses.

Can I still count those on the Schedule C and just do not show income?


If you are a W-2 worker, and you hired subcontractors to help you, there is no way to deduct those expenses.  You can't have a schedule C with expenses and no income, it won't end up as a deduction on your tax return.  And you can't deduct W-2 expenses by putting them on a Schedule C.  And the itemized deduction for W-2 employees was eliminated in 2018 tax reform.

 

I have never heard of an employee being reclassified as an independent contractor.  It almost always goes the other way around--someone who was classified as a contractor but should have been getting benefits.  You really should have known something was wrong when you started getting pay stubs with tax withholding and benefits.

 

There is a fair amount of paperwork now for the employer to reclassify you as a contractor.  And if you used any employee benefits (medical insurance, retirement plan) it may be impossible to reclassify you.  You may need to sue them to recover the amounts you spent on subcontractors.  

 

If you approach them about this and they do not readily recognize the problem, you may need to retain an attorney.  Did you have any employment documents such as a signed contract?

 

Here are some links to start reading.

https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation

https://www.irs.gov/newsroom/employee-or-independent-contractor-know-the-rules

https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-o...

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
DrKLS
Returning Member

W2 vs 1099

Many thanks.

I have not used any of the benefits.

I spoke to the company and my new contract starts in August.

I will get new paperwork and we will setup my account as 1099, not W2.

I do have two other 1099's for my company, those will be how I can input deductions, just not as much.

 

Thanks for the help. I did not plan well for 2019, but can at least get it correct for 2020 and beyond.

 

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