Rather than simply wait for New Year’s Eve parties, or watch the ball drop on Times Square and then sleep until the Packers-Lions game on Sunday, I decided I would get a head start on my taxes.
Over the last year I did some yard work for an elderly lady of 90 or so who insisted on paying me. The lawn mowing, snow clearing and odds and ends of handyman jobs added up to a few hundred dollars.
Afraid to run afoul of the law I have decided to claim this side job as income on my Federal and State Tax Returns.
Not knowing how to go about it, however, I made an appointment with my accountant and tax advisor Omar, who agreed to walk me through the process.
He explained the need to file an IRS Form Schedule ‘C’ with my Form 1040, which of course needs to be used when I itemize deductions such as property taxes, mortgage interest and now, additional income from my “side hustle.”
The first thing to do is to decide if I need my own company identity, such as an LLC, Partnership or ‘S’ Corporation and then determine whether to use an SSN, TIN or EIN, depending on the need for employees, a partner or corporate designation.
For the time being I have chosen to file as a Sole Proprietor, using my social security number.
Keep it simple. I think.
The next step is to file a Schedule ‘C’ (Form 1040) ‘Profit or Loss From Business’, with the accompanying 18 pages of instructions.
I could also get help from the “Small Business and Self-Employed (SB/SE) Tax Center”, which serves “taxpayers who file Form 1040, Schedules C,E,F, or Form 2106, as well as small business taxpayers with assets under $10 million.”
I think that’s me.
After identifying my business on Line A as “LP Wilson, Handyman,” I am required to provide a six-digit code from the “Principal Business or Professional Activity Codes,” on Line B.
Not finding an activity code for “lawn mowing, snow shoveling, running errands and painting the bird feeder,” I opted for “All Other Personal Services Repair & Maintenance” (Code 812990).
Part I: Income
Line one-income is pretty straightforward. Money I received for services as a handyman, etc.
Line six-other income (see instructions). Apparently I don’t have to claim the lunches she provided or the Christmas cookies she sent home for the family, as income.
Part II: Expenses
Line nine-Car and truck expenses (see instructions). I can either claim the standard mileage rate of 54 cents a mile for the miles driven for business or I can claim the actual expenses incurred in maintaining a vehicle for business use.
To claim any car and truck expenses I must do one of the following:
- “Complete Schedule C, Part IV, or Schedule C-EZ , Part III, if (a) you are claiming the standard mileage rate, you lease your vehicle, or your vehicle is fully depreciated, and (b)…….”
Forget it. I’m taking the 54 cents.
So, I ended up with a net profit from my handyman services.
“If a profit, enter on both Form 1040, line 12 (or Form 1040NR, line 13) and on Schedule SE, line 2.”
“Bear with me,” said Omar, “We’re almost finished.”
Schedule SE (Form 1040)’Self-Employment Tax’
Following the flow chart on page one I find that I need to file Section B-Long Schedule SE.
After determining that I am not a clergyman, church employee or farmer, I can skip to Line 2 unless I choose the Nonfarm Optional Method. “You may use this method only if (a)your gross nonfarm profits were less than $5457 and also less than 72.189% of your gross nonfarm income, and (b) you had net earnings from self-employment of at least $400 in 2 of the prior 3 years. Caution. You may use this method no more than five times.”
Then I multiply the amount on line 3 by 92.35% and determine that the total is more than $400.
On to line 6. “Add lines 4c and 5b.”
Note: The maximum amount of combined wages and those from self-employment subject to social security tax for 2016 is $118,500.
Good. I hate to go over the limit.
Then I multiply the amount on line 6 by 12.4% and then by 2.9%, entering those amounts on line 12 Self-employment Tax. “Enter here and on Form 1040, line 57, or Form 1040NR, line 55″.
Line 13 “Deduction for one-half of self-employment Tax.”
I then enter the final result-you guessed it-on Form 1040, blah, blah, blah, line 27.
Under the “Paper work Reduction Act Notice” of the IRS regulations, it was determined that it should take me 34 minutes total to find records, learn about the law, prepare the form and, “Copying, assembling, and sending the form to the IRS.”
Heck, it took me that long to just find the forms and instructions on www.IRS.gov/schedulec/schedulese,etc.,etc.
Omar advised that he will bill me the 250 bucks for his services after January 1st but I can deduct it from my 2017 taxes simply by filing another Schedule ‘C’ next year.
Next year? Next year?
Next year, my mother will have to cut her own grass.