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Old 01-30-2011, 02:19 AM
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Join Date: Jan 2011
Location: Music City USA - TN
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Question Confused on 1099 sent to us

After working for a large corp for 31 yrs; my husband has now semi retired and started his own repair business and set it up as a LLC.

A customer wrecked his car and filed the accident with his insurance company. Customer asked us if we could repair it and we said yes. Sent the insurance company an estimate and they approved it; so my husband did the repairs. We invoiced the customer for the entire amount and we received a check from his insurance company minus the deductible which the customer paid us for. We were excited because everything went smooth, we received payment fast, etc.

Now this week we receive a 1099 from the guy's insurance company. Will we have to pay taxes on this amount? When we file our taxes for the LLC; I feel like we will be paying twice for this job tax wise if we do.

Anyway, any insight on this would be great. I just hope you can understand what I'm asking as I am not familiar with taxes, etc. Our accountant is out of town for another week and I'm just sitting here clueless wanting some clarification. Thanks in advance



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Old 01-30-2011, 09:02 AM
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“ Will we have to pay taxes on this amount?”-----> Yes. Of course. It is your taxable income. Since the insurance company pays you $600 or more as a non-employee, it is legally required to report it to the IRS, using a 1099-MISC form, and sending you the Form.
“ When we file our taxes for the LLC; I feel like we will be paying twice for this job tax wise if we do.”---->It depends on the situation. But in general No; I assume that you are one member LLC, disregarded LLC, meaning that the income or deductions of the LLC go on the owner's regular tax return. For example, as you own the LLC that operates an active trade or business, the LLC's income and deductions go on the "Schedule C Profit or Loss From Sole Proprietorship" page of your tax return or SCh C-EZ. As long as the amount on your Sch SE line 4 is $400 or exceeds $400, then you must pay your self-employment taxes( REMEMBER: the 2010 Tax Relief Act reduced the self-employment tax by 2% for self-employment income earned in calendar year 2011. The self-employment tax rate for self-employment income earned in calendar year 2011 is 13.3%, NOT 15.3%). Also, as a sole proprietor or a self-employed individual, you generally have to make quarterly estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. An LLC owned by a husband and wife who reside in a community property state( there are 9 community property states) can also be treated a as a single-member, too. If your LLC is a corporation( I am not sure if you submitted Form 8332 to file your return as a corporation either S-corp or regular C corp status), then your LLC income and expenses are reported on the corporation's return, usually Form 1120 or Form 1120S but not 1065 ( unless your LLC is a multi-member LLC).
Please visit the IRS website for further info on LLC here; http://www.irs.gov/pub/irs-pdf/p3402.pdf
Self-Employment Tax (Social Security and Medicare Taxes)
Estimated Taxes
http://www.irs.gov/pub/irs-pdf/f1040sc.pdf
http://www.irs.gov/pub/irs-pdf/f1040sce.pdf



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Old 01-30-2011, 11:51 AM
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Join Date: Jan 2011
Location: Music City USA - TN
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Thank you for replying. My hats off to you and all that are accountants or understand all of this, soo soo much information. We just started this about 5 months ago, and while it has made a profit, we haven't paid ourselves from this business yet.

The LLC is set up as a 2 member, my husband and me. I just was thinking that since we would be reporting the businesses income from our books, and that having this 1099 to file also would more or less show it twice. If that makes sense at all. I guess what I'm really wondering is why did this insurance company send us a 1099 when all our other customers that aren't insurance related didn't, and they are all pretty much if not more money? We've never submitted a 1099 for work done our home, etc to businesses.

Thankfully, we have just hired a new accountant who handles nothing but small businesses, and after reading your response I feel less stressed about writing him a check for his services!


One question, if you read this follow up...my husband asked if he next time tells the customer to have the insurance company to pay them, would this be in our best interest?



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Old 01-30-2011, 03:34 PM
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“ We just started this about 5 months ago, and while it has made a profit, we haven't paid ourselves from this business yet.”----> As a sole proprietor or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return.
“The LLC is set up as a 2 member, my husband and me.”---> The IRS has recently ruled that if you are in a community property state, you can treat the husband and wife as one taxpayer for purposes of the single member LLC rules.
” I guess what I'm really wondering is why did this insurance company send us a 1099 when all our other customers that aren't insurance related didn't, and they are all pretty much if not more money?”---->I guess as said previously, as the insurance company as a business entity, pays you, a non-employee, $600 or more , it is legally required to report it to the IRS, using the 1099-MISC form.
“We've never submitted a 1099 for work done our home, etc to businesses.”---->If you want to issue 1099-MISC Form, then you can, but only if the payments should be in connection with your trade or business. You do not use 1099-MISC for personal payments to individuals. For example, if you hire an independent contractor for repair service, then you can get him 1099-MISC. You can and should issue 1099's if any fees paid exceed $600. You would use Form 1099-Misc. You can also issue them if the amounts are less than $600 but you are not required to do so.
“I just was thinking that since we would be reporting the businesses income from our books, and that having this 1099 to file also would more or less show it twice. If that makes sense at all. One question, if you read this follow up...my husband asked if he next time tells the customer to have the insurance company to pay them, would this be in our best interest?”----> I am not exactly sure what you mean with your question. I assume( guess) that you do not want to get paid with a 1099. I guess it depends on the situation; for instance, if there are business expenses incurred ( this is true for your business as you always incur your business operating expenses), then you would report this 1099-Misc income on your schedule C listing your business activity along with all the reasonable business expenses incurred in earning the income on the 1099 just like your regular business income. And as you can see, you are liable for your Self-employment taxes ONLY on your business net earnings. In this case, there is no better off or worse off between you get paid with a 1099 and you get paid by check or credit card o retc. On the contrary, this is not your case( because you are already self-employed sole proprietorship, single member LLC even just like an independent contractor), If there are no related business expense related to this 1099-Misc Income, than you have to report this amount on 1040 line 21 page 1, under Other income section that is subject to S/E taxes.
Here you will have to pay the 15.3% SE tax and have the income all be subjected to your regular tax at your tax bracket on the gross income on the 1099 MISC, not on net income. So, in this case, you are really worse off.



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