<p>As a college student I worked as a waitress and they started requiring us to pay taxes on estimated tips whether I got them or not. I was supposed to pay, I think it was $300, but didn't. 3 years later, they came after me for back taxes and penalties. It was at least 3 or 4 times the original amount I owed. Frustrating but a lesson learned.</p>
<p>She needs to file the 1040 with a Schedule C EZ -- see:
<a href="http://www.irs.gov/pub/irs-pdf/f1040sce.pdf%5B/url%5D">http://www.irs.gov/pub/irs-pdf/f1040sce.pdf</a></p>
<p>She should ballpark the expenses she incurred with Cutco -- for her mileage -- and of course for the initial investment (I know they require a purchase of materials to start). -- because the schedule C EZ does NOT require any itemization of expenses up to $5000 she should be o.k. even if she did not keep good records. She certainly must have an idea of how many sales calls & visits she made.</p>
<p>Subtract the total expenses from the amount on the 1099 and you will have her net earnings from self employment -- she will have to pay self employment tax on that unless the amount is less than $400. </p>
<p>So here is what she files:
1040
line 7: income from wages (attach W2)
line 12: Business income from line 3 on Schedule C EZ (keep 1099 for records, but do not attach)</p>
<p>Schedule C EZ -- (3 lines: what she made, her expenses, her net)</p>
<p>Schedule SE </p>
<hr>
<p>You will find the C EZ is about the easiest tax form you have ever seen. The hardest part is looking up the 6-digit code for the type of work she did in part B.</p>
<p>Keep in mind that your d. will pay 15.3% in self employment tax, so it is in her interest to be generous with herself when she reconstructs her expenses. Standard mileage for business miles is 48.5 cents -- see: <a href="http://www.irs.gov/newsroom/article/0,,id=163828,00.html%5B/url%5D">http://www.irs.gov/newsroom/article/0,,id=163828,00.html</a> -- so if your daughter was driving on average 300 miles a week to her sales calls, and worked 10 weeks, that would be 3000 x .485= $1455 -- if you add that to whatever the initial investment was for her demonstration kit ($150? $300?) and maybe some miscellaneous costs for supplies - and you can see that she has a lot of "expenses" to deduct from that $2300. Every $100 of expenses she comes up with reduces her tax liability by $15. </p>
<p>She should note down the way she came up with the numbers on the worksheet on the bottom of the C EZ instruction page -- that doesn't got to IRS, it is just something to keep for her own records -- but having those notes will help her if IRS ever comes asking. </p>
<p>But since you said in your opening post that she drove "millions" of miles I don't think my example above is unreasonable - if she made 12 sales calls each week with an average round trip drive of 25 miles, then she would have that 300/weekly that I used as an example. </p>
<p>PM me if you want more info.</p>
<p>Wow, I almost cross posted with calmom, but I went back to look at your daughter's numbers and when I returned she had posted all the info I was planning on giving you. (except she didn't look back to see that your daughter earned a total of 3800)</p>
<p>Anyway, I think you should follow her advice, and download the appropriate forms and not go through turbo tax. </p>
<p>If you can get her net profit down to about 2K, Her taxes will be $300 minus the $75 so she will owe $225. But I just think that it's important to realize that if she had earned the $3800 as a W-2 employee that's just about what would have been taken out as her share of social security anyway. This way it's hitting her unexpectedly and all at once.</p>
<p>
[quote]
Isn't a portion of the value of the computer a deduction?
[/quote]
</p>
<p>Since she only works 3-5 hours a week (but she couldn't do this job without a computer), I don't think it will qualify, but it is one of the questions I will be asking our accountant next week.</p>
<p>
[quote]
. (except she didn't look back to see that your daughter earned a total of 3800)
[/quote]
Sorry, I thought the work in TN was a different job, with a W2 --that's why I referred to an entry on line 7. If Cutco is the only job, and all the income is on the 1099, then it would all be on the Schedule C EZ with the net income entered on line 12. (My own kids have both W2 and 1099-Misc income to deal with -- so I was actually looking at a copy of my d's tax return while explaining this -- I just happened to have it handy because I had to print out copies of all the tax returns for IDOC for financial aid.).</p>
<p>It isn't quite 15.3% since you deduct half from your income somewhere else on the form. At least on the regular 1040. I haven't gotten to fill out an EZ in 25+ years! </p>
<p>At any rate this is a lesson in keeping track of expenses and reserving $$ for taxes. I have to pay estimates quarterly. At least she didn't have to do that! It's pretty tricky to deduct a shared computer.</p>
<p>
</p>
<p>Actually, you generally need to file a tax return if your self-employment income exceeds $400. Here's the relevant statement from the IRS:</p>
<p>
[quote]
You must file a tax return if your income is above a certain level. The amount varies depending on filing status, age and the type of income you receive.</p>
<p>For example, a married couple both under age 65 generally is not required to file until their joint income reaches $17,500. However self-employed individuals generally must file a tax return if their net income from self employment was at least $400.
[/quote]
</p>
<p>source:
Should</a> You File a Tax Return?</p>
<p>When taxguy mentioned the $600 figure, I believe he was thinking of a different IRS requirement. A payer such as Cutco is only required to issue a 1099 if they pay an individual more than $600. </p>
<p>However, anyone with $400 of net self-employment income is generally required to file a tax return, whether or not s/he received a 1099.</p>
<p>There are certain very limited exceptions that may apply in the case of certain children under 18 who are newspaper carriers or who do occasional household work (casual babysitting, snow shoveling, lawn work) and there are also some exceptions for certain members of the clergy (e.g., those who take vows of poverty), but just about everyone else is liable for self-employment tax on any self-employment income over $400, regardless of whether they received a 1099 or not.</p>
<p>mathmom, that deduction won't help if the kid hasn't made enough money to owe regular income taxes. The total self-employment tax is still owed. So lets say that the kid has $1000 net self employment and owes $153. $1000 is less than the standard deduction, so a kid with $1000 total of earned income owes 0 income tax -- but she still owes the $153 self employment. She can take a deduction of $77 against the $1000 net, thereby reducing taxable income to $923... for which she owes 0 income tax, $153 self employment. </p>
<p>The deduction for 1/2 only starts to help at the point that person earns enough to need a deduction -- which generally would have to be in excess of $5350 in earned income.</p>
<p>But FICA tax due is calculated on SCH SE - and that looks at net self employment income to calculate what is owed and that is where the self employed get the benefit of that employer part of the FICA deduction. </p>
<p>The net from Sch C is multiplied by 92.35% (100 - 7.65) and THAT is the amount used to calculate FICA owed (with restrictions, of course - but they don't apply to this particular case).</p>
<p>On the $1,000 net income example; Self Employment Tax would be $141 (not the full $153).</p>
<p>Disclaimer - that's my personal experience over past years. Haven't gotten into my self employment stuff for this year yet. It's only the end of March.</p>
<p><em>Groans, clutches head!</em> Anyone for flat tax reform here? :(</p>
<p>
</p>
<p>The good news is that a program like Turbotax will do the calculations vulture3 mentioned automatically, as long as the taxpayer enters the information from her 1099 and answers Turbotax questions about the related business expenses and mileage driven for business.</p>
<p>The bad news is that few people actually understand what is going on in their tax return any more.</p>
<p>For comic relief, see:
<a href="http://www.cs.amherst.edu/%7Edjv/irs.pdf%5B/url%5D">www.cs.amherst.edu/~djv/irs.pdf</a></p>
<p>That's what computer software is for. You don't have to memorize this stuff.</p>
<p>Another issue...I thought that everyone who filed a return with a minimum income of $3000 (including income from work), even if they pay no income tax, will get a flat $300 stimulus payment.
My daughter made over $3000 between summer earnings and work-study, and filed a return of her own partly for this purpose.
Does anyone know if this interpretation is correct?</p>
<p>DS (self employed) used the Turbotax software and filed his taxes with almost no assistance from us. I'm sure the other tax prep software programs are just as easy to do. If your income is low enough (and for most students...it is), you can freefile too...as mentioned above in another post.</p>
<p>Re: the tax incentive...if your child is 18 or over, they do not count as a "child" for the tax rebate on the parent side.</p>
<p>If they are declared as dependents on the parent tax return, they do not get the $300 themselves. It doesn't matter that they file their own return. If the parents declared them as dependents on THEIR tax return, the kid is ineligible for the rebate.</p>
<p>I called this the double shaft.</p>
<p>Just a clarification: that $3000 requirement for the tax relief check has to be in earned income. Social security counts. But like thumper says: they can't be a dependent on someone elses return. </p>
<p>Another clarification: that child can't be 17 or over.</p>
<p>^^LOL. </p>
<p>I just buy tax software and plug in the numbers and hope for the best. I'm sure there are deductions I could have taken that I've missed.</p>
<p>[url=<a href="http://www.irs.gov/irs/article/0,,id=179096,00.html%5DStimulus">http://www.irs.gov/irs/article/0,,id=179096,00.html]Stimulus</a> Payments: Instructions for Low-Income Workers and Recipients of Social Security and Certain Veterans</p>
<p>Whoa, I had a very similar situation to OP's in 2006 where I earned $750 from 1099-misc, but no w-2s. My mom did my tax return and looks like she didn't do it right. How can I amend my 2006 tax return? I am 17 now. thanks.</p>
<p>It will come up as a tax owed. Yes, she has to file it. The good news is that it will show her with 1 or 2 quarters of work for social security work history, depending on when she started. If you can document any deductions, by date, mileage, special clothing, etc., and whittle the income down below $600, there may not be anything owed on social security. If not, it will be minimal. PIA, I know! Unfortunately, even putting it into an IRA will not take away the SS owed. However, if she could fund any part of a ROTH IRA, it will pay steep dividends down the road. Good luck.</p>
<p>You have to whittle it down to just over $400 to not owe any social security tax. The $600 magic figure is the amount that a company has to pay an individual before having to issue a 1099.</p>
<p>Azkid: to amend a 2006 return, go to the IRS website and download a 1040X. Then fill the left hand column with the original numbers, the right hand column with the new numbers and the difference in the middle column. Attach schedules that have changed. In your case, probably schedule C and SE.</p>