not sure how to answer the questions when it triggers a Schedule C. "started 'Award Trip' (what I named this 1099-MISC) in 2018" or "stopped 'Award Trip' in 2018" or "didn't start or stop 'Award Trip' in 2018".
I need to make sure I do this correctly because it just changed my tax due by $3000!
I work for a company that sells/builds swimming pools. One of our subcontractors runs a contest for every part of theirs that we sell we accumulate points. At the end of the year if you have enough points you get to go on their trip that they host. This is the "income" from the trip.
Sounds to me like it should have been reported in box 3 of the 1099-MISC. Would you agree with that @Opus 17 ?
I called the company and they checked with their accounting department. They said that it should be Box 7. Not sure where to go from here with that info.
On general terms, I think this would be classified as self employment income. However, it also sounds similar to extra commissions or “spiffs” that auto manufacturers pay to successful salespersons. Although you “earn” it by selling cars and the salesperson is an employee of the dealership, the spiff is considered unearned income and is reported in box 3. I don’t know if the “spiff” treatment is specific to the car industry or not. I need to do some research.
OK. To clarify, I don't work for this company that provided the trip or sell for them. They supply in floor cleaning systems to pool companies all over the world, and my company uses them in our building of pools. (if that makes sense) I get that I could be taxed on their value of the trip ($7700!!), but I didn't think it would be so impactful. Just want to make sure I do this correctly. Can I enter in Box 3 if they issued their 1099-MISC "income" in Box 7?
@Hal_Al do you know if the SPIFF rules apply outside of the car industry to similar awards?
Also see this answer. <a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/replies/5182783">https://ttlc.intuit.com/replies/5182783</a>
And this <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p3204.pdf">https://www.irs.gov/pub/irs-pdf/p3204.pdf</a>
Yes SPIFF rules apply outside the automobile industry. Poster used the term "subcontractor". That would not apply. But what he describes sounds more like a manufacturer/supplier.
He can enter it as a SPIFF, but since the amount is in box 7 and the supplier's accountant says that's correct, he will have trouble on an IRS audit
As I see it, you're basically a contractor and your "employer" is actually your business client. So the "award" would be considered self-employment income and get reported on SCH C as such, since it is compensation for services and/or products you provided.
The real key point here is that we aren't accountants, or even we are, you aren't paying us and we won't represent you at an audit. How you use the information we provide is at your own risk.
As I take it, you are an employee of company A ("I work for a company that installs pools"). Pools that you build may come with options, including a particular accessory (a cleaning system) provided by Company B. Company B offers prizes and other rewards if you convince your customers (customers of company A) to purchase and install Company B's accessories.
This is a SPIFF, and is "other income", not self-employment income.
In reading about the history of SPIFFs, I find for example that Apple and IBM used to pay direct commissions to computer sales persons (employees of ComputerWorld, Circuit City, etc.) for selling their computers over competitors. Today we think of it mainly in the car industry, but we really don't know how many other companies might do this. The key concept is that an employee of company A, who receives a direct commission from company B in return for persuading customers to buy company B's product over a competitor, reports the income as other income, not self-employment income. I don't see that it matters whether company B is a manufacturer selling a tangible product, or whether company B is a service company that sells installation of a tangible product originally manufactured by company C. Company B gives you a reward but you are not an employee of company B.
(The situation would be different if you were an independent contractor working for company A, and you were subcontracting to company B to do certain work. The incentive from company B would either be a reduction in the price you paid to company B, or self-employment, either of which has the net effect of raising your self-employment income. But assuming you are a W-2 employee of company A, the reward from company B is a "SPIFF" and is other income but not SE income.
Turbotax assumes by default that box 7 is SE income. Don't change the 1099-MISC. Report as is, but answer the texting questions "No" (not like your regular job, not done with intent to earn a profit, not planning on doing similar work next year). This should put the money in as other income, not on schedule C.
However, you will likely get an automatic letter from the IRS tell you that you should have reported the income as SE income. You would need to send a detailed reply explaining why you believe this income should have been reported in box 3 and should not be considered SE income.