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posted Feb 24, 2021 7:00:51 PM

Schedule C, no 1099MISC

My wife made money from 3 online English Teaching companies based in Hong Kong. She wasn't issued a 1099MISC for any of them and is considered an Independent Contractor. We weren't aware that we had to submit quarterly earnings until now.

 

I'm using Home & Business 2020. Under Business Income I've listed earnings from all 3 companies under General Income.

 

  1.  I'm not sure what to choose for Accounting Method. Cash or Accrual Method? I've read that others are selecting Cash Method for similar circumstances, but we are not reporting the income in the year we actually received it. Accrual doesn't make sense either because we're not necessarily reporting it in the year we've earned it either. If I don't select anything it will not let me go any further.
  2. After entering all income which is < $10k it is saying my federal refund is $146. How can this be? I set aside 25% of this money assuming this is what we'd owe. I feel like I'm definitely doing something wrong.

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1 Replies
Expert Alumni
Feb 25, 2021 8:17:53 AM

Regarding statement #1, cash or accrual: The majority of tax payers (and small businesses) use the cash basis. Under the cash basis, income is not counted until cash (or a check) is actually received, and expenses are not counted until they are actually paid.

 

  • If you did not report income that you received in the correct year, you need to file a prior year tax return or amend your tax return(s). Each year's income and expenses get reported separately. You can't lump all the income and expenses together if it was earned in different years.

Regarding statement #2: Depending on your other income, 25% may not be enough since your wife has to pay self-employment (SE) tax, in addition to federal income tax and state (if your state has an income tax). 

  • The SE tax rate is 15.3% with 12.4% for Social Security and 2.9% for Medicare.
  • If you set aside 25%, that leaves you with only 9.7% to cover federal income tax.