I have spoken to several Classical Conversations (CC) Directors lately who tell me that they gave themselves a 1099-MISC to report what they paid themselves.
But this is not correct! CC Directors should not give themselves a 1099-MISC.
I can understand their confusion. These Directors are business owners of a Classical Conversations community offering classes for homeschool students and their parents in how to educate their children using classical methods. Typically, these Directors hire tutors as independent contractors to reach a class once a week and frequently the Directors also teach a class themselves.
They give their tutors a 1099-MISC to report their earned income and so they think they should give themselves a 1099-MISC as well. But this is not the correct way to report income as a CC Director.
As a business owner (and I’m referring to a sole proprietorship filing a Schedule C on their Form 1040) a CC Director is not paid as an independent contractor. Business owners are not “paid” at all. Instead they get to keep all the profit that the business makes. That profit is their “pay” or earnings from the business.
How to correctly report your income from your CC business
One Director told me that she reported her 1099-MISC as her total income on her Schedule C Business Income or Loss. But this is not correct. I explained that she needed to report all the income that the participating families paid her. That amount is her total income, not what she “paid herself” and reported on a 1099-MISC (incorrectly).
“Oh dear,” she replied, “I’ve been doing it wrong for three years!” Yes, she had been. 🙁
I explained that she needed to file a Form 1040X Amended Tax Return to correctly report her income on her Schedule C for those prior years.
I also advised her to contact a local CPA to help her learn how to correct her tax returns and prepare it properly in the future.
How to correct a 1099-MISC
If you have given yourself a 1099-MISC, then you need to correct it ASAP!
Start by reading IRS Instructions to Form 1099-MISC page 10. Follow the instructions carefully. Check the CORRECTED box. Include yourself with $0 (zero) in Box 7 Non-employee compensation.
I recommend you contact a local CPA to help you file the corrected 1099-MISC.
If you’ve already prepared your tax return with the incorrect 1099-MISC, you’ll need to file a 1040X as well to amend your tax return. It’s time to get professional help!
Business taxes and paying employees or independent contractors is not a guessing game! There are professionals like CPA and tax professionals who can help you file your 1099-MISC and tax returns correctly.
Carol Topp, CPA