On April 15 last year (you know, that day the personal tax returns are due!), I received this email:
I need to be sure I don’t have any tax forms to file with IRS. This was our first year as a CC community, with only 2 tutors and 12 children.
-Name withheld to protect the guilty
Just as aside before I answer her question: This CC Director treated her tutors as independent contractors all year long. That may or may not have been the proper worker classification for them. She may have exerted enough control over the tutors that they should have been treated as employees, but I did not address that issue with her. At this point, what the director did in the past with regard to paying her tutors is done; it cannot be changed now. I addressed what she needs to do now to properly file her taxes.
Dear Name withheld,
As a Classical Conversations (CC) director, you are a small business owner.
You should have given your tutors a Form 1099-MISC to report the income you paid them (assuming you classified them as independent contractors). The Form 1099-MISC is to be given to each tutor by January 31 each year for the income paid in the prior year. A copy is also sent to the IRS. It sounds like you missed that deadline.
By the way, you cannot simply print the Form 1099-MISC from the IRS website. You must order forms from the IRS, purchase them at an office supply store, or use an online filing program like Yearli.com (that’s the service I’ve used to file my 1099-MISC and my affiliate link).
You should also have reported your income and expenses from your CC business on your personal income tax return, using Form 1040 Schedule C Profit or Loss from Business.
If you had a profit of more than $400 for the year, you will also owe Self-Employment Tax. It is calculated on Form 1040 Schedule SE.
Taxes for 2018 will be very confusing with the new tax law changes and redesigned IRS Form 1040. I am offering this webinar to help you understand how to prepare your tax return:
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 I’ve EVER attended. If you do hold another one, I would pay for it hands down. Totally worth the $10!“ -Denise, webinar attendee
“I actually don’t care for webinars at all – it is not my learning style at all and I struggle to focus, but this one was extremely value and had my attention”. -Mary, webinar attendee
I’m afraid Name-withheld is very late in filing these forms! She may owe a penalty for late filing your 1099-MISC forms. She may need to file an amended federal income tax return (Form 1040X) if she failed to include her CC income and expenses. She may also need to amend her state income tax return.
I strongly recommend that Name-withheld contact a local CPA to discuss amending her federal and state income tax returns.
She may also need to address if independent contractor status is the proper classification for her tutors. My book Paying Workers in a Homeschool Organization can help determine the best classification for workers.
Carol Topp, CPA