What is everyones experience with 1099's?

[futurehomeowner?]

I know this isn't credit related but I was hoping people in here would have experience with this since we all talk about suing this JDBs all the time.

 

Note: Because I signed confidentiality agreements I am not listing who the lawsuits were against and the amounts are not the right amounts but the % of money taken by lawyers is the same.

 

In 2013 I sued a JDB and reached a settlement. Since we reached a settlement they did not pay the lawyer fees like they would if they lost in court but of course the lawyer took his nice chunk out. We settled for $18,000, lawyer took $10635 and we received $7365. In 2014 when we received our 1099 it was sent to the lawyer but it had my name on it instead of the lawyer. It was for the full amount of $18000. The lawyer emailed it to me along with a listing of his fees that I could use on my taxes as expenses.

 

In 2014 I sued a different JDB and reached a settlement. The amount was for $24,000, lawyer took $12,000 and we received $12,000. Last month the 1099 was sent to my lawyer with his name on it for $24,000. He sent me a 1099 for $12,000 and we paid taxes accordingly.

 

After I did my taxes last week I realized that these 1099s were handled differently. In 2013 we had no expenses other than the lawyer fees so we take the standard deduction. We ended up having to pay taxes on the entire $18,000 which means we basically paid more in taxes than we received. This just doesn't make sense to me. Should the lawyer in 2013 handled the 1099 the same way as the one this year?

 

 

[tweak]

Others will probably have better answers than me. But I'll give it a shot.

 

For 2013, you said you claimed $18,000 in 1099 income.

And were entitled to take $10,635 in expenses.

So you could have treated this like self-employment income, and deducted these expenses against the 1099 income.

And only paid taxes on the difference.

I think this requires filing Schedule C, but this is where my recollection gets fuzzy.

 

I don't think the standard deduction has anything to do with deducting expenses for self-employment (1099) income.

 

If I am correct, you could refile for 2013, and pay the correct amount of taxes for the money you actually took in (or get a refund for overpayment).

 

 

The way the other lawyer did it in 2014 is cleaner and easier for you, but I don't think either way is incorrect.

Edited February 28, 2015 by tweak691

[futurehomeowner?]

When I questioned the lawyer in 2013 about it he basically said the same thing. However I didn't think you could consider this self empoyment income since it was a 1 time thing. I am going to refile the 2013 claim which is kinda what I am trying to figure it out right now. It may be worth it to talk to an accountant about it but I wanted to hear other experience first so I knew what I was talking about with the accountant.

[tweak]

Definitely wait to see if others have input.

 

But I do think that most 1099 income can be treated as self-employment income.

Meaning that legitimate business expenses (like what the 2013 attorney provided you) can be deducted against that income.

 

I still receive 1099s annually for royalties on work I did over a decade ago.

My CPA treats this as self-employment income every year - even though I am no longer in that business or otherwise self-employed.

[cashnocredit]

Others will probably have better answers than me. But I'll give it a shot.

 

For 2013, you said you claimed $18,000 in 1099 income.

And were entitled to take $10,635 in expenses.

So you could have treated this like self-employment income, and deducted these expenses against the 1099 income.

And only paid taxes on the difference.

I think this requires filing Schedule C, but this is where my recollection gets fuzzy.

 

I don't think the standard deduction has anything to do with deducting expenses for self-employment (1099) income.

 

If I am correct, you could refile for 2013, and pay the correct amount of taxes for the money you actually took in (or get a refund for overpayment).

 

 

The way the other lawyer did it in 2014 is cleaner and easier for you, but I don't think either way is incorrect.

 

Agreed. That is how it should be handled. File an amended return and get your money back. Do it quickly. The SOL is two years on an amended return.

Edited February 28, 2015 by cashnocredit

[futurehomeowner?]

 

Others will probably have better answers than me. But I'll give it a shot.

 

For 2013, you said you claimed $18,000 in 1099 income.

And were entitled to take $10,635 in expenses.

So you could have treated this like self-employment income, and deducted these expenses against the 1099 income.

And only paid taxes on the difference.

I think this requires filing Schedule C, but this is where my recollection gets fuzzy.

 

I don't think the standard deduction has anything to do with deducting expenses for self-employment (1099) income.

 

If I am correct, you could refile for 2013, and pay the correct amount of taxes for the money you actually took in (or get a refund for overpayment).

 

 

The way the other lawyer did it in 2014 is cleaner and easier for you, but I don't think either way is incorrect.

 

Agreed. That is how it should be handled. File an amended return and get your money back. Do it quickly. The SOL is two years on an amended return.

 

wow I had no idea there was a SOL on it. I am looking at it right now and if turbo tax allows me to do the self employment thing then I will see if that will fly.

[dilligaf]

I always thought it was 3 years. We are both correct.

 

From:

http://www.irs.gov/taxtopics/tc308.html

 

Generally, to claim a refund, you must file Form 1040X within 3 years after the date you filed your original return or within 2 years after the date you paid the tax, whichever is later. Returns filed before the due date (without regard to extensions) are considered filed on the due date.

Edited February 28, 2015 by dilligaf

[cashnocredit]

I always thought it was 3 years. We are both correct.

 

From:

http://www.irs.gov/taxtopics/tc308.html

 

Generally, to claim a refund, you must file Form 1040X within 3 years after the date you filed your original return or within 2 years after the date you paid the tax, whichever is later. Returns filed before the due date (without regard to extensions) are considered filed on the due date.

 

 

Thanks for that info. I was remembering back when I was a tax flake. Looks like 3 years is what typically applies. It's a no brainer to get the excess tax paid back.

[futurehomeowner?]

So I just finished going through Turbotax. The main difference that I see is if you file a 1099 as a miscellaneous 1 time income then it is just entered as regular income and taxed accordingly. If you file it as a self employment 1099 then you have to pay self employment tax as well. I guess as it is I am going to just redo it that way and get most of the money back. If I could get the JDB to redo the 1099 and send it to the lawyer I would save a little bit but there is probably a slim to none chance of that happening. Thanks guys/gals for the info.

[tweak]

You are doing the right thing - considering this as self-employment income with deductions for the legitimate expenses.

 

If Turbo Tax doesn't cut it, hire a CPA for a few hundred bucks and file an amended return for 2013 that way.