Carl
Level 15

Investors & landlords

Glad you got it all figured out and fixed now. Here's a bit more information to help you with the learning and understanding process. Just keep in mind that the "oxymoronic rule set" still applies.

You have two "extremely" basic times of income.

Earned income - This is sometimes, though rarely referred to as non-passive income. This is income you receive, generally because you had to go out and "do something" to actually earn it. Typically, this "something" you do is done on a recurring basis, but not necessarily. What you do at your W-2 job would be an example of this. on the 1099-MISC this type of income would typically be reported in box 3 of that form. (For the 2019 form and earlier, it could be box 3 or box 7)

Passive income - This is income you receive that is not "earned" per-se, as described above. This income includes rental income, royalty income, interest income, dividend income, and several other types. With this time of income, all you really do is just "sit there" on your bum and collect it each pay period. You don't actually "do" anything to earn it. What complicates things with passive income, is that not all types of passive income are taxed the same. For example, interest income may not be (or it may be, depending on it's source) taxed the same as rental and royalty income. This is why rental and royalty income get reported on SCH E, and interest income does "not" get reported on SCH E.

When it comes to the 1099-MISC, passive rental income is reported in box 1 of that form, while passive royalty income is reported in box 2. Both of those boxes are SCH E income.

However, earned income reported in box 3 is "earned" income. Therefore by default, it gets reported as such on SCH C.

 

At this point you're still wondering, "what the hell is the oxymoronic rule set?" I'll answer that now.

The Oxymoronic Rule Set consists of two rules. Both rules are false, and both rules are true, AT THE SAME TIME!

Rule #1: For every rule, there is an exception.

Rule #2: There are no exceptions for Rule #1.