Update: The 1099-MISC form has been replaced by the 1099-NEC (Non employee Compensation) as of 2020.
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 (now replaced with a 1099-NEC).
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 teach a class once a week and frequently the Directors also teach a class themselves.
They give their tutors a 1099-MISC (now a 1099-NEC) to report their earned income and so they think they should give themselves a 1099-NEC 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. š
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/1099-NEC
If you have given yourself a 1099-MISC or 1099-NEC, then you need to correct it ASAP!
Start by reading IRS Instructions to Form 1099-NEC. Follow the instructions carefully.
I recommend you contact a local CPA to help you file the corrected 1099-MISCor 1099-NEC.
If you’ve already prepared your tax return with the incorrect 1099-MISC/NEC, you’ll need to file a 1040X as well to amend your tax return.Ā It’s time to get professional help!
There is a lot to learn about running a business. I don’t mean to discourage you or anyone else away from operating a homeschool business. You provide a valuable service to homeschool families! I am offering this webinar to help you understand the tax implications:
I recorded a webinar on Tax Preparation for Homeschool Business Owners. It should be a lot of help to tutors, non-employee co-op teachers and other homeschool business owners! You can watch the recording at HomeschoolCPA.com/HSBIZTAXES for a small fee of $10.
Carol, thank you again for the webinar. It was one of the BEST webinars Iāve EVER attended. If you do hold another one, I would pay for it hands down. Totally worth the $10!ā -Denise, webinar attendee
āI actually donāt care for webinars at all ā it is not my learning style at all and I struggle to focus, but this one was extremely value and had my attentionā. -Mary, webinar attendee
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
My husband owns his own business and in incorporated as an S Corp. I will be a new Ch A director in the fall. Would it be a good idea for tax purposes to have my CC parents write their checks to his SCorp instead of to me? then he could hire me to tutor for CC?
Betsy,
Using your husband’s S corp does not sound like a good idea to me at all. It is a completely different business.
And the S Corp does not employ you as a tutor. The CC parents pay you to Direct and tutor.
Hopefully, your husband as a CPA for his S Corp. Ask his or her opinion of your idea. But I think you should not mix these two businesses. You should file your own Schedule C as a sole proprietor separate from the S Corp.
Carol Topp, CPA
HomeschoolCPA.com