1099-NEC, paid for occasional consultation work

[soodye]

In 2021, I occasionally helped companies like GLG with some hourly consultation for their clients. I also did it with other similar companies and one of them issued a 1099-NEC form.

In total, I did only 6 hours in 2021 in 4 consultation sessions, so I would categorize it as "not regular and no continuity" and as very occasional services. According to TT instruction note for QBI:

"If you receive payment for a one-off or very occasional service, and you report this as other income rather than a self-employment or business activity, this would not be considered a qualified business"

So this sounds like I could report either as business/self employment or as "other income", correct?

Or I should report as business no matter what since I got a 1099-NEC?

It just seems weird to report $1,000 something income as a business and with no deduction at all. TT also states that risk of getting audit is 3x more when a tax return has a Schedule C. This would be the first time for me including a Schedule C too.

Thanks in advance.

[ColeenD3]

This is self-employment income. You did it with the intention of earning money and very likely would have done more sessions had they been available. This situation you mentioned is for when something is out of the norm.

Follow these steps to go to the Schedule C section of your return:

On the top right corner of TurboTax online screen, click on Search (or for CD/downloaded TurboTax locate the search box in the upper right corner).

1. Type in “schedule c” (or for CD/downloaded TurboTax, click Find).
2. Click on “Jump to schedule c”.
3. Click on the blue “Jump to schedule c” link

[soodye]

Thank you, ColeenD3. That is helpful.

One quick follow-up question:

For the question: is this a qualified business income? - Do I answer yes/no in that case?

[GeorgeM777]

It depends.   Qualified business income is defined as "the net amount of qualified items of income, gain, deduction and loss with respect to any trade or business."  Broadly speaking, that means your business's net profit.  But it also means that not all business income qualifies. QBI excludes:

• Capital gains or losses.

• Dividends.

• Interest income.

• Income earned outside the U.S.

• Certain wage and guaranteed payments made to partners and shareholders.

If your total taxable income (that is, not just your business income but other income as well) is at or below $164,900 for single filers or $329,800 for joint filers in 2021 you may qualify for the 20% deduction on your taxable business income.  In 2022, the limits rise to $170,050 for single filers and $340,100 for joint filers.

If your income is over the limits referenced in the preceding paragraph, then there are some limitations on the 20% QBI deduction.  For example, if your business is a “specified service trade or business” in 2021 and your income is from $164,900 to $214,900 (single filers) or from $329,800 to $429,800 (joint filers), there are some tests to determine whether you can claim the qualified business income deduction, and, if so, whether it’ll be reduced.

Based on your prior post, it appears that you business might fall into the category of a specified trade or business; however, if the income limits are not violated, then you would still be entitled to the 20% QBI deduction, and if your business had a net profit, then the income would be qualified business income. 

@soodye 

[soodye]

Thanks @GeorgeM777 

I am over the income cap you mentioned. I think that is why my return amount does not change either I answer yes/no to the question: Is this Qualified Business Income?

My current conclusion based on your answer and @ColeenD3 's answer, I think

• This consulting income is self-employed income and should be in Schedule C
• It is a Qualified Business Income, since it is not an employee's wages and not dividend/interest/CGT
• And yes, the income is from Specified Services list, Consulting in this case
• I did not play an active role in this business since I was not actively working on this work on a year-round basis.

Please let me know if you think the some points above are incorrect based on the information I provided. Thank you.

[ZoltanB45]

Your first 3 bullet points are accurate based on your description. However, you still actively participated, even though you did not do so year round.

[soodye]

Thank you, @ZoltanB45 !