Honorarium?

[NOLA-70119]

i was invited to a conference for a presentation and was told that I would be paid an honorarium that would cover my expenses. I bought the ticket and traveled to the conference in late 2019 but was not paid the honorarium until 2020 and the conference said I'd receive the 1099 in 2021. I don't usually do honorariums. Can I expense the plane ticket and should I expense if on 2019 taxes or 2020 taxes when I will be reporting the income? 

[Opus 17]

How much are we talking about?

[ThomasM125]

Unless you are self-employed, the travel expenses would not be deductible on your federal tax return. The new tax laws that went into effect in 2018 eliminated employee business expenses as a deduction for all but a few select tax filers.

[Opus 17]

A person offered an honorarium to speak at a conference in their area of employment speciality (college faculty, for example) may well be considered self-employed for that purpose, since it is in their "usual line of work".  They could deduct the expenses against the income and only pay tax on the net after expenses.  This is actually fairly common in my line of work and I have personally done this.  Doctors, college faculty, and similar professions might have consulting contracts or speaking arrangements outside their usual W-2 employment. 

However, getting paid and 1099-ed in a different year than the expense was incurred creates some problems, especially if you only occasionally perform this sort of work.  (If one was a regular conference invited speaker, one could deduct 2019 expenses against other 2019 income.  Here, the taxpayer does not have other 2019 self-employment income.)

The simplest answer is to forget about the expenses and report the income and pay the tax on the 2020 tax return.  The taxpayer could list the income as miscellaneous income (not self-employment) and only pay income tax, not self-employment tax.  (Because, even if paid in box 7 as "compensation" for work performed, the taxpayer can argue it was not compensation for work performed because it was a one-off and they are not engaged in an "ongoing trade or business" as a consultant or conference speaker; and thus only subject to income tax and not SE tax.)  The taxpayer can't deduct expenses against miscellaneous income because that deduction was eliminated. 

If the taxpayer wants to declare it as self-employment income, they can deduct expenses, but will pay income tax AND 15% self-employment tax on the net.  This might result in less tax owed.  But it gets tricky if the expenses and income occur in different years and the taxpayer has no other 2019 self-employment income.  Proper tax advice from an accountant or enrolled agent would be suggested, except that it might not be worth it depending on the amount of the honorarium.  

So for (let's imagine) a $1000 speaking fee with $600 in travel expenses, the choice would be report as misc income in 2020 (pay income tax on $1000, easy) or report as SE income (pay income tax plus SE tax on $400, complicated and requires expert advice).   That might be $220 of tax versus $148 of taxes.

[NOLA-70119]

It was $1500 which basically covered the cost of the plane ticket to get to the event.

[ThomasM125]

You can probably consider it self-employment income and deduct the travel. However, you'll have to upgrade to the self-employed version of TurboTax and pay the extra fee, which won't save you too much money in the long run.

[NOLA-70119]

We actually already bought the self-employed version of TurboTax anticipating that we'd have to account for the honorarium this year. So at least there's that!

[VictoriaD75]

Will this type of income be expected going forward, or is this a one-time event? If this is a one-time event, you can include the income on line 8 of Schedule 1 (in the year received) as "other." You will not be assessed self-employment tax, but you cannot deduct the related expenses.

If you plan on continuing this type of work, you may be considered a "trade or business" for tax purposes. In that case, you can deduct the expenses in the year paid, which, unfortunately, will not match up to the year the money was received. You would show a business loss for 2019. But, assuming it was a business, you should be recognizing additional business expenses in the current year to help offset the income.

[Opus 17]

We actually already bought the self-employed version of TurboTax anticipating that we'd have to account for the honorarium this year. So at least there's that!

Unfortunately, it appears from your answer that you won't be paid until 2020, so you would need the SE version next year, not this year. 

The simplest thing to do will be to report the income in 2020, when you actually receive the income and get a 1099.  Report your travel expenses as an expense against the income, even though the expenses occurred in 2019.  This is not technically correct, but the chance of an audit is remote.  

If audited, there are two possible outcomes I can think of.

1. The IRS rules the 2019 expenses are "startup expenses". These would still be deductible on your 2020 schedule C but in a slightly different manner, making your original tax return technically incorrect but  to changing your tax very much.  Or, 

2. The IRS might rule that you are not involved in an ongoing trade or business as a consultant or speaker, and you should have reported the income as "other income" and not deducted your travel expenses.

That pretty much covers all the options, unfortunately or fortunately the tax involved is probably not worth paying for legal advice, but you can make an informed decision on which way to go.