Favor Delivery Driving

[weaslebub]

My son generates 90% of his income from his main business each year. The other 10% comes from finding odd jobs he picks up to make a little extra money.

In 2018, he began delivery driving for Favor. Favor drivers are contract employees and don't receive a 1099-K unless they deliver 200+ Favors AND generate $20K+ in gross Favors per year. He only made $1,000, so he didn't receive a 1099-K.

My question is, is he REQUIRED to file a Schedule C for this income? Is there a reason he couldn't just forego deducting expenses and just add this small amount of income on his 1040 as Hobby or Other Income?  Since it's not being reported to the IRS, I wouldn't think it matters as long as I include it somewhere. I'm sure that's not the case, but creating an entire business return for such a small seems counterproductive. 

One reason I don't want to deal with the expenses is because he used the same car and phone for both his main business and for Favor driving. I don't know if that would raise any red flags or somehow be an issue, but I would think the less complicated it is the better. 

I know it's not overly difficult to do, but the benefit from these expenses isn't going to be much and it's just not worth the time it'll take to figure out.

Any thoughts or suggestions to minimize issues?

Thanks!

[Carl]

My question is, is he REQUIRED to file a Schedule C for this income?

Yes.

Is there a reason he couldn't just forego deducting expenses and just add this small amount of income on his 1040 as Hobby or Other Income?

Yes. The reason is because it's not a hobby. He's doing it with the intent of making a profit. If he wasn't making money, it's quite obvious he would not continue doing it on a recurring basis.

Since it's not being reported to the IRS, I wouldn't think it matters as long as I include it somewhere.

Oh you can rest assurred with 100% certainty that it is being reported to the IRS as a business expense by the entity that pays him.

creating an entire business return for such a small seems counterproductive.

He's not creating an entire business return. In fact, he's not creating a business return at all. The income and associated expenses are reported on SCH C as a physical part of the "personal" 1040 tax return.

One reason I don't want to deal with the expenses is because he used the same car and phone for both his main business and for Favor driving.

So file SCH C-EZ instead. With the TurboTax program you can use SCH C-EZ if the following conditions are met:

• Your total business expenses don’t exceed $5,000,
• You use the cash method of accounting,
• Your business or profession doesn’t require inventory,
• You aren’t reporting a loss,
• You operate only one business,
• You don’t receive certain credit card payments,
• The business has no employees,
• You don’t claim the home office deduction, and
• You satisfy the requirements of other less common situations that relate to depreciation and losses from prior years.

One thing to remember is that you must make this evaluation each tax year—eligibility to use the Schedule C-EZ one year doesn’t mean you can use it in all future tax years.

I don't know if that would raise any red flags or somehow be an issue, but I would think the less complicated it is the better.

Generally, when you don't report income or incorrectly report income, it will catch up to you about 24-36 months after you file. By then, the back taxes, fines, penalties and late fees can accumulate to quite a bit and really "bite" you hard in the wallet.

I know it's not overly difficult to do, but the benefit from these expenses isn't going to be much and it's just not worth the time it'll take to figure out.

So long as you meet the criteria for SCH C-EZ that would be the simplest thing to do.

[VolvoGirl]

Another user rjs has reported that schedule C-EZ has been eliminated for 2019.

[weaslebub]

Thanks Carl for your reply.

My apologies. Obviously I didn't choose my wording very well, but let me know if this clarification changes your suggestions.

My son already files a SCH-C for his primary business as a performing artist, and it's filed as a physical part of his "personal" 1040 tax return. What I was trying to say is that if I created a second SCH-C for the Favor driving there would be overlapping expenses between the two businesses, and since the amount is so small it seems like a bigger headache to deal with than it's worth. Correct me if I'm wrong, but filing a SCH C-EZ doesn't seem possible according to the criteria you provided since this wouldn't be the only business he operated.

I mistakenly asked about including this as Hobby Income. I meant to ask if it can be entered as "Other Earned Income" in the  "Miscellaneous Income" section, and if not, why? I did try to find some IRS guidance with this but too much of it seemed subjective. Just to be clear, I am reporting this income one way or another and I'm not trying to hide the income or avoid the taxes. If anything, I'm just trying to report it with the least amount of effort and without raising the risk of an audit.

Regarding the fines and penalties you mentioned, would they apply even if all the income is reported but it's just in the wrong place? That would seem a bit harsh considering the tax code isn't the easiest subject to master.

Thanks again for your help. 

[Critter]

Now he has a second Sch C to file ... and he needs to prorate the common expenses.