Dependent and 1099-NEC

[vtpeco]

After reading all the confusion about entering 1099-NEC forms received by my dependents, I'm still confused 🤔. My son is a dependent on my return and I am creating a return for him that says he can be claimed as a dependent on someone else's return. He is not self-employed nor does he own his own business.

I enter his 1099-NEC on his return and that is fine.  It then says the 'Business Income and Expenses (Sch C)' section needs review. The first question in that section asks if you have any business income and expenses.

HOWEVER, and I quote, 'But before you say "yes", if you have 1099-MISCs or 1099-NECs, it's better to enter them under 1099-MISC and Other Common Income.'

Having already done that, is it still necessary to say 'Yes' to business income? It then asks for information that does not pertain to him (such as Business Code, Accounting Method and it asks for any 1099-NEC income again).

Thanks for the clarification, Val.

[Vanessa A]

Yes, you need to answer yes to business income.

The fact that he has a 1099-NEC says he is likely performing some sort of business or independent contractor type work.  If he is performing work for someone and not being paid as an employee, he needs to fill out a Schedule C, regardless of age.  Schedule C is for independent contractors too. 

[vtpeco]

Thank you.  A couple of follow up clarifications....

I'm using 'Cash Method' as the accounting method and he did NOT play an active role in the business (he worked less then 500 hours).

I also did not re-input the 1099-NEC as it was already entered in the '1099-MISC and Other Common Income' section, and said the work is NOT qualified (QBI).  His 1099-NEC was work work done as an intern at a college during the summer.

Thanks again for the help. Val.

[vtpeco]

This gets even more confusing 😯.  Based on my above assumptions, it's now asking for the parents tax information so the 1099-NEC income can be taxed at the parents rate.  I thought by reporting the 1099-NEC on a Schedule C would NOT require it to be taxed at the parents rate.  I've tried manually deleting form 8615 and 1099-NEC but form 8615 keeps getting automatically recreated.

This is getting ridiculous. All I want to do is enter a 1099-NEC that my son received while being a dependent on our tax return.

[JohnB5677]

I suggest that you file a separate return for the child.  The kiddie tax applies to most unearned income that a child receives and does not apply to any salary or wages.

Indicate in the Information section that someone else can claim them as a dependent.  Then complete the child's tax return.

Then file your own tax return claiming the child as a dependent.  

[vtpeco]

That's what I'm already doing. As I've already mentioned. My son is a dependent on my return. I am filing a separate return for him and indicating he can be claimed as a dependent on someone else's return.

How do I enter a 1099-NEC on my son's return as earned income and it not try to tax it at my rate.

[Vanessa A]

Try clearing the return and starting over.  To do this click Tax Tools>>Clear and Start Over.  This will remove any other hidden forms and not have you trying to delete the problem forms.  It sounds like something you entered made the program think this was unearned income. The 1099-Misc can sometimes report unearned income so depending how the questions were answered, this may have triggered the kitty tax. 

Then after you enter his personal info go directly to the business income section.

To enter your self-employment income click the following:

• Federal
• Income and Expenses
• Show More next to Self-Employment
• Start or Revisit next to Self-Employment
• Yes, to you have any self-employment income or expense
• Enter the type of self-employment work you do
• Click through a few more screens and you will get to a screen that says "Your XX info"
• Click Looks good
• Then you will come to a screen that says Let's enter the income for your business.  It will give you the option of 1099-NEC or Other self-employed income including the 1099K , cash and checks.  Select the one that applies to you and hit continue
• If you do not select one, it will not let you enter your income
• Enter the 1099-NEC income on the next screen

Also, remember, when you enter his forms, it may seem like a higher tax rate than it seems it should be because he will be paying an extra 15.3% for self-employment tax.  

[vtpeco]

Thanks Vanessa but I'm still having problems. One clarification first...I am using  the desktop version of TurboTax so your directions are not the same. Following your logic, I went directly to the Business Income section and entered the information. However, it still treats the 1099-NEC as unearned income and prompts for the parents income.

I tried answering the business questions every which way I could think of but get the same result.

[ColeenD3]

You can still delete a form in the desktop version.

Using the TurboTax desktop editions to delete a form you have to click on Forms.  When in Forms mode locate the form you want to delete on the left side of the screen.  Click on the form to Open.  With the form opened scroll down to the bottom of the page and click on Delete.

To completely clear everything, follow these steps.

You can delete a tax return from within the TurboTax Windows Desktop Program on the very first screen after starting the program or go to File-Open. Click on the large square icon representing the file you wish to delete (avoid clicking the blue "Continue" button). Then just hit your delete key and answer the prompt.

[VolvoGirl]

@vtpeco   You answered a question wrong.  He DID play an active role in the business.  It's HIS business.

That is self employment income.

Yes you are the owner of your own self employment business.  You are in business for yourself.  Use your own info.  The people or company that pays you is your customer or client.  You are considered to have your own business for it.  YOU are the business.

You need to fill out schedule C for self employment business income and pay self employment tax in addition to regular income tax on it.  The SE tax is to pay Social Security and Medicare tax that wasn't taken out like on a W2.

Self Employment tax (Scheduled SE) is automatically generated if a person has $400 or more of net profit from self-employment.  You pay 15.3% SE tax on 92.35% of your Net Profit greater than $400.  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  

The SE tax is already included in your tax due or reduced your refund.  It is on the 1040 Schedule 2 line 4 which goes to 1040 line 15.  The SE tax is in addition to your regular income tax on the net profit.

Here is some IRS reading material……

IRS information on Self Employment

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center

Pulication 334, Tax Guide for Small Business

http://www.irs.gov/pub/irs-pdf/p334.pdf

Publication 535 Business Expenses

http://www.irs.gov/pub/irs-pdf/p535.pdf