Tax audit and self employment tax added...

[yukon]

I'm not worried about paying what I owe and have some savings to cover few grands but just got caught off guard as I never had to deal with selft employment tax even though last 6 years out of 10 have 1099's.


If the company reported the amounts in box 3, and you reported them on the return as being in box 3, you wouldn't have been charged SE tax. However, if the company (correctly) reported those payments in box 7, and you reported them on the return as being in box 7, the tax software should have calculated SE tax on the net profit of of all of the 1099s reported. You also may have accidentally checked the "not subject to self employment tax" box in the software when entering the 1099 data.

Additionally - you may have owed the SE tax on the return, but if you had excess withholding from your W2 wages, you might not have noticed it on the tax return as the W2 withholding was enough to cover both income tax due and SE tax due. So the net effect on your tax return would have been no additional tax due, or even a refund.

For years you know you'll have small jobs and not much in the way of extra income via 1099s, you can increase the withholdin on your W2 job to cover the taxes. If you have too much withheld on the W2 job for the year at tax time, it will be refunded to you.

[yukon]

Originally Posted by emm74

Trying to deduct for a home office is one of the biggest red flags for a full audit. For a relatively small amount of income earned from a couple of side projects, I wouldn't bother. And something like a computer - unless you bought one specifically to use only for this work, also not worth trying to calculate a small percentage less depreciation.

Wrong on both items.

A home office is no longer an automatic audit flag. It depends in part on what your home office business is. It also depends on the amount of space you're claiming. And finally, if you are ever audited and you can show the office area is dedicated to the home business, there isn't an issue with the deduction. Starting with tax year 2013, taxpayers had the option of taking the standard home office deduction, or the simplified home office deduction. If the IRS was automatically flagging every home office deduction for audit, why would they have developed the Simplified Option? Hmnnn?

As for a computer, OP does not have to take 100% of the computer as business expense. He can take only the business use, and enter as such on the depreciation schedule. That is no longer an automatic audit flag either.

[Mystery123]

Originally Posted by yukon

If the company reported the amounts in box 3, and you reported them on the return as being in box 3, you wouldn't have been charged SE tax. However, if the company (correctly) reported those payments in box 7, and you reported them on the return as being in box 7, the tax software should have calculated SE tax on the net profit of of all of the 1099s reported. You also may have accidentally checked the "not subject to self employment tax" box in the software when entering the 1099 data.

Not sure what happened but I'm pretty sure I put whatever was on the 1099.
If the form didn't ask me box for 1099 like in W2, I may have missed that but both 1099 have amount in box 7 as nonemployee compensation and I think that's what I've entered.
I never ever knowing put one thing into another.

As far as reporting expense, I'm not sure.
I'll talk tax guy and if there is something easy figure, we'll see.
Thanks all for chiming in.