Received a 1099-misc (box 3) for interest income related to a promisory note. TT is treating it as work income and charging SE tax. How do I change to interest income?

[mpedigo1]

TT does not provide a simple selection for interest income reported on 1099-MISC.  The LLC was advised by their CPA to use 1099-MISC instead of 1099-INT.  

I've answered that it is not work related to my profession or work related, but TT still treating it as work income.  Is there a bug in the program?  I put in the description line that it is interest income, but TT appends work behind my description.

[HelenaC]

To report income that was not self-employment income on Form 1099-MISC:

1. Sign in to TurboTax .
2. Search for 1099-misc other income.
3. Select the Jump to 1099-misc link in the search results.
4. Select Yes to Did you get a 1099-MISC?
5. If you need to enter another 1099-MISC, select Add Another 1099-MISC to enter a new one.
6. Enter the information from your 1099-MISC.
7. If your form has an amount in more than one box, you’ll need to enter them as separate 1099-MISC forms. We’ll help you with that.
8. On the Describe the reason for this 1099-MISC screen, enter a reason (i.e. Interest income from XXX) then Continue.
9. On the Does one of these uncommon situations apply? screen, select None of these apply then Continue.
10. On the Did the XXX involve work that’s like your main job? screen, select No, it didn’t involve work like my main job then Continue.
11. On the How often did you get income from XXX? screen, select I got it in 2018 then Continue.
12. On the Did the XXX involve an intent to earn money? screen, select No, it didn’t involve an intent to earn money then Continue.
13. The amount will appear on Schedule 1, Line 21.

You can view your 1040 form, Schedule 1, Line 21 before you file your return by switching to Forms Mode. See  How do I switch to Forms Mode in the TurboTax for Windows software?

[mpedigo1]

It asks if you expect to earn the same in 2019, which I do since it is a 24 month promissory note.  Should I not select this even though it is true?  If this is the case, is that not a bug with the program?   TT is not polished at all this year and workflows are lacking in a lot of places.

[HelenaC]

It's just odd that you have a 1099-MISC form for interest income instead of a 1099-INT. You may also enter the 1099-MISC as if you had a 1099-INT form. Your Payer would be 1099-MISC from XXXX. Enter the amount in Form 1099-MISC  Box 3 in Form 1099-INT Box 1. This way will report the interest income on Schedule B along with all your other interest amounts but it will also reference the 1099-MISC form. Bottom line: your tax is the same using either method.  

The most important thing is the income is accounted for when the IRS cross checks your forms.

[HelenaC]

 I did not know that it spanned two years.

[mpedigo1]

I read some threads that the IRS can get confused if you report the 1099-MISC box 3 as 1099-INT box 1.  Just seems like either option is bad from the perspective of causing a red flag and potential audit event.

Since it is a 24 month promissory note, It will span multiple years so if I follow the workflow logically, I should select that which appears to trigger TT to think that it is work related whether or not you tell it it is not work related or earn money.

If you have the ability, I  suggest you bring this to TT development team's attention that this workflow needs some work to make it comprehensive for not work-related scenarios.  I've asked the LLC to use 1099-INT in the future, but I'm at their mercy and their CPA who feels a blanket 1099-MISC for whatever they pay out is easier on their side whether a payout on interest on a promissory note or payment to an independent contractor for services rendered.  Thank you for your help.

[HelenaC]

You're very welcome.