1099-MISC for investment income

[b8singst0ke]

I received quarterly payments in 2020 for a callable medium term investment product. The payer has listed them on 1099-MISC box 3 Other Income but Turbo-Tax insists on treating this as self-employment income, including creating self-employment forms and a self-employment tax liability (my taxes would otherwise be zero, I believe). Did the payer incorrectly list this income on 1099-MISC rather than 1099-B or 1099-INV, or is there a question I'm answering wrong about it in the TurboTax dialog? To be clear, I did no work to earn this, only invested a sum of my own money with JPMorganChase. I'm retired and had little other income than Social Security in 2020.

[DavidD66]

It definitely doesn't belong on Schedule C as self-employment income.  Can you clarify and explain what kind of investment this is?

[b8singst0ke]

I invested a sum with JPMorganChase structured so they paid interest (5.5% APR) quarterly as long as none of three market indexes hadn't lost 30% of their starting value; I received 3 quarterly payments in 2020, which the investment firm through which I bought it  has listed as miscellaneous on 1099-MISC instead of as interest on -B or -INT.  It's a callable note/bond and the conditions were met (barely) so interest was paid.

Thanks for your reply, didn't see it right away.

[Carl]

See if this does the trick. Don't know if it will or not for your specific situation.

Reporting 1099-MISC (box 3 or box 7) that is not self-employment income

Under the Wages & Income tab (or Personal Income tab) scroll down to Other Common Income and elect to start/update Income from form 1099-MISC. Then click YES to indicate you have a 1099-MISC.

Enter the 1099-MISC exactly as printed, and then Continue.

Enter the reason you got this money – be it scholarship, bonus, streaking butt naked across the 50 yard line of the super bowl, whatever. Then continue.

Select None of these apply, then Continue.

Select No, it didn’t involve work….. and Continue.

Select ONLY the tax year for which this specific 1099-MISC was issued. Do not select the year that you received the 1099. Select the year for which the 1099-MISC was issued. Select no other year. Then Continue.

Select No, it didn’t involve an intent to earn money, then Continue.

Select NO, then Continue.

Click the DONE button, and that does it.

[ColeenD3 · Accepted solution]

Delete the first 1099-Misc to clear out the program and then enter as below.

You can enter the 1099-MISC in TurboTax as "Other Common Income," which is reported on line 8 of 1040 Schedule 1.  Please use the following steps:

1. Click on Federal > Wages & Income.
2. Scroll down to the Other Common Income section. 
3. Click on the Start/Revisit box next Form 1099-MISC. 
4. On the screen Did you get a 1099-MISC?   Yes 
5. Enter the information from the 1099-MISC.
    
6. On the following screens, answer the following questions:
   • Did it involve work that's like your main job? No.
   • You got it in 2019
   • No, it didn't involve an intent to earn money

 7.  Continue through the rest of the interview screens. The income will appear as Other Income.

Here's the general procedure for viewing the forms list and deleting unwanted forms, schedules, and worksheets in TurboTax Online:

1. Open or continue your return in TurboTax.
2. In the left menu, select Tax Tools and then Tools.
3. In the pop-up window Tool Center, choose Delete a form.
4. Select Delete next to the form/schedule/worksheet in the list and follow the instructions.

[b8singst0ke]

Thanks, that worked.  I gave it a "best" because I also had to delete two spurious Sched Cs it had created, and the check process wanted fully filled in.  The form delete didn't work quite as described, I got a Forms submenu and then a list of forms on the left to view them, then deleted  each Sched C when it was displayed (confirming when requested).  But after that, check was error-free and amt owed was $0 as hoped.

Thanks to all who responded on this.  My error was to (1) say I hoped to earn from the same source in 2021, and (2) say it was to earn money.  I guess in this context "earn" involves employment, which this income did not.

[Carl]

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.

[KatGo82]

Thanks...  This worked to a "tee..."  I had the same issue as T/Tax tried to show this as Sched C Business Income...  I followed these steps to correct my 1099-MISC entries and now it correctly shows as Other Income on Sched 1.