“ Is this the correct use of a 1099?”-Yes; a 1099 is received by persons paid $600 or more as an independent contractor by a trade or business.
“ How do I handle this form? The total amount of the 1099 is 7100.00 but of this amount, only 1500.00 is labor, the rest is the cost of the engine and related parts and sales tax?”----> As a Sole Proprietor (selfemployed), you receive a 1099-misc, as nonemployee income. Then you must file Sch C ( or C EZ). On the Sch C you need to enter your income and expenses. As long as the amount on Sch SE line 4 is $400 or exceeds $00, you MUST pay selfemployment taxes. Also, 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. However, you do not have to pay estimated tax for the current year if you meet all three of the following conditions; you had no tax liability for the prior year ;you were a U.S. citizen or resident for the whole year ;your prior tax year covered a 12 month period.
Please visit the IRS website here; Self-Employment Tax (Social Security and Medicare Taxes) Estimated Taxes