How do I minimize taxes if I received a 1099-NEC? For years this agency sent me a 1099-INT, but changed the reporting this year. The 1099-NEC results in higher taxes.

[tccutler]

For years, I've been an investor in a relative's real estate business, which is primarily flipping homes. The original agreement was a straight note where I am paid 10% annually per the principle amount invested, based on when homes are sold. For years, I received a 1099-INT which is taxable as normal income. I am typically in the 22% tax bracket. For 2025, I received a 1099-NEC, which is new to me. The amount earned was close to $13k. After some reading, it appears that I pay self-employment tax, plus federal tax, plus state tax. My initial calculations are the 1099-NEC would be taxed upwards of 30-35%. Questions for this forum - What tax credit might I have missed with 1099-NEC? Would it be better to request a 1099-INT from my relative's business?

[Vanessa A · Accepted solution]

If you are STRICTLY an investor and not performing a service then a 1099-NEC would not be the correct form for you.  It would be better if you requested the 1099-NEC to be cancelled and to have a 1099-INT issued.  

The 1099-NEC is for someone who performed a service for the business.  If you are being treated as a consultant or advisor then the 1099-NEC could be appropriate.  

You are correct about the amount of taxes and how it changes due to having to pay self employment taxes of 15.3% on top of your regular taxes instead of just paying your ordinary income tax. However, as an independent contractor or self-employed  you may be able to take business expense deductions and a QBI deduction which can help offset some of the self-employment income taxes. You can also deduct 50% of your SE taxes which can help lower the tax burden of being self-employed. 

If the members of the family who operate the business issues you a 1099-INT, be sure they also issue you a corrected 1099-NEC reporting $0 income so that the income is not double reported.  They will also need to send the corrected 1099-NEC to the  IRS so the IRS knows that you do not have the NEC to report as well.  

Reporting Self-Employment Business Income and Deductions