Question about consulting/contracting work

[mjrpes3]

I currently work part time doing website/database work for a company, but was recently offered some contracting work by an outside individual to help fix up his MS Access database. This is a really minor job, and I expect to get less than $200 out of it.

Do I have to keep record of this income and report it for taxes (I live in California, btw)? Is there a threshold, where if I make below a certain amount from side jobs like this I don't have to report it to the IRS and/or pay taxes? If so, how much money can I make before I would have to report it?

I realize he could just pay me 'under the table', but I want to know what the law is on this. I was browsing the IRS Website, and my guess is it falls under their 'self-employed' section, but that just made me more confused. Is this really 'self-employed' income... even though I am not self-employed?

Ultimately, if the work I need to do for this project is really tiny (less than an hour or two), then I just plan to do it for free.... seems easiest

Thanks,

Newbie

 

[Cal166]

Someone correct me if i am wrong but I remember that anything under $600 on 1099, you don't have to report it?

 

[GuitarDaddy]

Yep, $600 is the limit

 

[paulney]

You should keep the records and report it on your income, however the contracting agency is not required to send you 1099-Misc (and report it to IRS) unless you raked up more than $600. They are required to keep the records (and your signed W9 as well) in case of audit though.

 

[mjrpes3]

Thanks for pointing out those amounts, they helped with the google searching. So it seems that $600 is the minimum a business pays out before then need to fill a 1099 form. But my situation is different, as I'm the one taking money in. A search result mentioned $400, which lead me to this IRS page: http://www.irs.gov/faqs/faq4-3.html

It states:

Unless you think you were an employee, you report your nonemployee compensation on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship), or Form 1040, Schedule C-EZ (PDF), Net Profit from Business. You also need to complete Form 1040, Schedule SE (PDF), Self-Employment Tax, and pay self-employment tax on your net earnings from self-employment, if you had net earnings from self-employment of $400 or more.

I guess what it's stating is that, no matter how much money I make as an individual contractor, I need to fill out the Form 1040, Schedule C. If I make over $400, then I have to pay taxes on this income and fill out their Schedule SE form.

I guess this is starting to make sense.

 

[WildHorse]

If virtually 100% of your income is derived from only one customer, you are in deep yogurt.

Quick! This is an emergency!

Rule of thumb: you never allow any single customer to account for more than about 15% of your income, maximum. Please notice the proper use of the word "Never."

And one more thing. Please note the above word: RULE

This is a hard rule of business.

Do whatever you need to do to diversify your customer (revenue) base.

NOW!

I.E.; you've got yourself a sales problem to solve PRONTO!!!!

Get yourself some more customers.

Again, please take notice of the above word: R U L E !

I kid you not.

 

[ponyo]

Originally posted by: scott
If virtually 100% of your income is derived from only one customer, you are in deep yogurt.

Quick! This is an emergency!

Rule of thumb: you never allow any single customer to account for more than about 15% of your income, maximum. Please notice the proper use of the word "Never."

And one more thing. Please note the above word: RULE

This is a hard rule of business.

Do whatever you need to do to diversify your customer (revenue) base.

NOW!

I.E.; you've got yourself a sales problem to solve PRONTO!!!!

Get yourself some more customers.

Again, please take notice of the above word: R U L E !

I kid you not.

Whatever. First, there's no hard rule in a business other than to try to make enough profit to stay in the business.

While it's nice to have diversified client base, the type of industry and the size and the resource of the business can effect that. Smaller players will typically have concentrated client base. Any company supplying to industry with few players will also.

 

[mjrpes3]

Originally posted by: scott
If virtually 100% of your income is derived from only one customer, you are in deep yogurt.

Quick! This is an emergency!

Rule of thumb: you never allow any single customer to account for more than about 15% of your income, maximum. Please notice the proper use of the word "Never."

And one more thing. Please note the above word: RULE

This is a hard rule of business.

Do whatever you need to do to diversify your customer (revenue) base.

NOW!

I.E.; you've got yourself a sales problem to solve PRONTO!!!!

Get yourself some more customers.

Again, please take notice of the above word: R U L E !

I kid you not.

I'm a bit confused by your post. Are you replying to me or just making a general statement? I stated that I already have a job, I just want to know what I'm supposed to do tax-wise if I take in a minuscule amount on the side as an individual contractor.

 

[Greenman]

Originally posted by: scott
If virtually 100% of your income is derived from only one customer, you are in deep yogurt.

Quick! This is an emergency!

Rule of thumb: you never allow any single customer to account for more than about 15% of your income, maximum. Please notice the proper use of the word "Never."

And one more thing. Please note the above word: RULE

This is a hard rule of business.

Do whatever you need to do to diversify your customer (revenue) base.

NOW!

I.E.; you've got yourself a sales problem to solve PRONTO!!!!

Get yourself some more customers.

Again, please take notice of the above word: R U L E !

I kid you not.

You should have read the post before responding, all of your advice is meaningless in the context of this thread.

 

[GuitarDaddy]

If you want to be a totally straight shooter, yes you should report it on a schedule C. But the reality is if it's not over $600 and not reported to the IRS by the payee, there is absolutely 0% chance that the IRS would ever call you on it and 90% of the population wouldn't report it.

If this is just an every once in a while type occurence and your not planning on running your own business, I wouldn't report it. Filing a schedule C puts you on the radar as a business owner and increases you chance of being audited.

 

[AccruedExpenditure]

Originally posted by: scott
If virtually 100% of your income is derived from only one customer, you are in deep yogurt.

Quick! This is an emergency!

Rule of thumb: you never allow any single customer to account for more than about 15% of your income, maximum. Please notice the proper use of the word "Never."

And one more thing. Please note the above word: RULE

This is a hard rule of business.

Do whatever you need to do to diversify your customer (revenue) base.

NOW!

I.E.; you've got yourself a sales problem to solve PRONTO!!!!

Get yourself some more customers.

Again, please take notice of the above word: R U L E !

I kid you not.

This is totally great advice. I can't believe I didn't think of it before. Now I can be rich like you.

Oh wait.

 

[mjrpes3]

Originally posted by: GuitarDaddy
If you want to be a totally straight shooter, yes you should report it on a schedule C. But the reality is if it's not over $600 and not reported to the IRS by the payee, there is absolutely 0% chance that the IRS would ever call you on it and 90% of the population wouldn't report it.

If this is just an every once in a while type occurence and your not planning on running your own business, I wouldn't report it. Filing a schedule C puts you on the radar as a business owner and increases you chance of being audited.

I think what I'll do is only report it if I make over $400, the maximum you can make before you have to start paying taxes.

Interesting to think that I could make $399, and keep all of it. Make one dollar more, and I'm keeping a lot less than $399. Could lead to one of those situations where I'm telling the guy, "please, please DON'T pay me for that one extra hour."

 

[GuitarDaddy]

Your an upstanding citizen:thumbsup: I know several people that do side jobs and they all follow the rule if it's not reported to them on a 1099 they don't report it.

And remember that $400 is net profit on the schedule C. So if you have legitimate deductable expenses(mileage, tools, etc...) offsetting your income you could make quite a bit more than $400 and still not be required to report it as long as the net is less than $400.

 

[mugs]

Originally posted by: Greenman

Originally posted by: scott
If virtually 100% of your income is derived from only one customer, you are in deep yogurt.

Quick! This is an emergency!

Rule of thumb: you never allow any single customer to account for more than about 15% of your income, maximum. Please notice the proper use of the word "Never."

And one more thing. Please note the above word: RULE

This is a hard rule of business.

Do whatever you need to do to diversify your customer (revenue) base.

NOW!

I.E.; you've got yourself a sales problem to solve PRONTO!!!!

Get yourself some more customers.

Again, please take notice of the above word: R U L E !

I kid you not.

You should have read the post before responding, all of your advice is meaningless in the context of this thread.

:laugh: True.

 

[mjrpes3]

Originally posted by: GuitarDaddy
And remember that $400 is net profit on the schedule C. So if you have legitimate deductable expenses(mileage, tools, etc...) offsetting your income you could make quite a bit more than $400 and still not be required to report it as long as the net is less than $400.

Ah... that's a good point. All the more reason to keep good bookkeeping :thumbsup: