@vtpeco You answered a question wrong. He DID play an active role in the business. It's HIS business.
That is self employment income.
Yes you are the owner of your own self employment business. You are in business for yourself. Use your own info. The people or company that pays you is your customer or client. You are considered to have your own business for it. YOU are the business.
You need to fill out schedule C for self employment business income and pay self employment tax in addition to regular income tax on it. The SE tax is to pay Social Security and Medicare tax that wasn't taken out like on a W2.
Self Employment tax (Scheduled SE) is automatically generated if a person has $400 or more of net profit from self-employment. You pay 15.3% SE tax on 92.35% of your Net Profit greater than $400. The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare. So you get social security credit for it when you retire.
The SE tax is already included in your tax due or reduced your refund. It is on the 1040 Schedule 2 line 4 which goes to 1040 line 15. The SE tax is in addition to your regular income tax on the net profit.
Here is some IRS reading material……
IRS information on Self Employment
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center
Pulication 334, Tax Guide for Small Business
http://www.irs.gov/pub/irs-pdf/p334.pdf
Publication 535 Business Expenses
http://www.irs.gov/pub/irs-pdf/p535.pdf
