tax question

If you received a From 1099-Misc reporting $9,000 of non-employee compensation, then tha IRS could prepare a substitute for return for you as follows:

The $9,000 would be reported as income from a business on Sch C with zero expenses. So you would have $9,000 of self-employment income on which you would owe $1,272 of self-employment tax.

You would also have $9,000 of gross income for incom tax purposaes. You would be entitled to deduct $636 (50% of the self-employment tax) from your gross income to give you $8,364 of adjusted gross income. You have enough earned income that you will be entitled to the full standard deduction for any prior tax year, but you may not be entitled to a personal exemption if your parents claimed you as a dependent. The
IRS will reduce your adjusted gross income by the standard deduction and any allowable personal exemption to get your taxable income. And the income tax will be 10% of you taxable income.


If this was for 2006, then the standard deduction would have been $5,150. Your taxable income would have been $3,214 in the worst case, and your income tax would have been $321. In the best case you would have gotten a personal exemption of $3,300, and you would have had zero taxable income and zero income tax.


So the worst case you should expect is for the IRS to come looking for $1,593 of unpaid tax plus penalties and interest. However, if you were a student, and you also received a Form 1098-T with sufficient qualifying education expenses the answer may differ since those expenses would reduce your taxable income and your income tax. This would be an improvement, but it wouldn't get you the best answer.

Your best answer would be to file a tax return for that year that claims expenses incurred to earn the $9,000 so that the self-employment tax will be reduced. You won't be able to eliminate the self-employment tax by claiming a credit for your education expenses, but you should be able to get the total tax you owe down to under $1,000 with reasonable expenses for mileage you may have driven, cell phone usage, etc.

Not if he was a student.