1099-Misc Box 7

[Michigan Mom]

What is the name of your state? Michigan

My friend gets residual commission checks from selling health products years ago. He is no longer active in the business and doesn't claim any business expenses. They issued him a 1099-Misc, using Box 7. Is there any way around paying SE Taxes and filing out Schedule C? In prior years, he's shown the income on line 21 and it's included in his AGI - but he's not done Sch C and paid SE Tax. I don't think this is right based on what I've read - but would like it to be so he doesn't have to pay as much. Any advice?

 

[Snipes5]

It sounds a lot more like royalties than non-employee compensation. Can he contact the company and have them change the 1099 to reflect this?

Snipes

 

[Michigan Mom]

I went to irs.gov to read the definition of a royalty and I don't think it fits. Because he's still a rep for the company, he gets a "commision" when someone he previously sold the health product to (like vitamins, for example) reorders. He hasn't sign on new customers for years, but his old ones apparently like the products and continue to buy. He's doing nothing to get these checks - just cashing them (can he take an expense for driving to the bank to cash them - ha ha).

Seems odd that he has to pay SE tax when he's not taking any expenses for being self employeed.

 

[Rhubarb297]

I went to irs.gov to read the definition of a royalty and I don't think it fits. Because he's still a rep for the company, he gets a "commision" when someone he previously sold the health product to (like vitamins, for example) reorders. He hasn't sign on new customers for years, but his old ones apparently like the products and continue to buy. He's doing nothing to get these checks - just cashing them (can he take an expense for driving to the bank to cash them - ha ha).

Seems odd that he has to pay SE tax when he's not taking any expenses for being self employeed.

He's getting income from self-employment he had. The fact he doesn't have any expenses in generating that income has no bearing on whether it's income or whether he has to pay social security tax (which is what the self-employment tax is) is on that income.

 

[Rhubarb297]

It sounds a lot more like royalties than non-employee compensation. Can he contact the company and have them change the 1099 to reflect this?

Snipes

Royalties? What???