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Marvin,EA, Enrolled Agent
Category: Tax
Satisfied Customers: 1672
Experience:  Enrolled to Represent Taxpayers Before The IRS
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Additional income

Resolved Question:

I have a full time job where federal and state income taxes are deducted as well as social security taxes. As a hobby I have done some writing and been published, the additional income I recieve from this has always been included simply as additional income. However the preparer for my 2007 taxes handled them as a business which put me in a completely different tax bracket and created a large liability. Unfortunately he e-filed the forms before I had the chance to look them over and when I questioned it he said that it was the only way to do it. Is that correct?
Submitted: 9 years ago.
Category: Tax
Expert:  Marvin,EA replied 9 years ago.
Hello and thank you for using Just Answer. How long have you been writing for a hobby? How much did you make for writing in 2007? Have you deduct your expenses from writing on Sch. A before?
Customer: replied 9 years ago.
The books were actually written by my husband and myself before his death in 2001. The first was published in 2006, the second in 2007 and another will come out this year. In 2007 I received approximately 12,000 from the publisher. No I had never done a Schedule A before this year. I had always simply added the amounts as additional income and included a copy of the 1099.
Expert:  Marvin,EA replied 9 years ago.

The tax preparer filed a Sch. C, Profit and Loss From a Sole Proprietorship, for your 2007 tax return. When you filed a Sch. C, Social Security Tax (12.5% rate) is charged on net profit up to $97,500. You should have the tax preparer file an amended tax return to correct his error for you. Have the preparer change the income from a Sch. C to other income. You should receive a refund for the Social Security Tax paid.

Customer: replied 9 years ago.
Does that mean he needs to do the schedule A you mentioned or can it be handled as 'extra income' as in previous years? I ask because I received a notice from the IRS that they have raised the amount of tax I should have paid in 2006, as well and I think they are applying the same thing to it altho I've not gotten an answer about that.
Expert:  Marvin,EA replied 9 years ago.
When your tax preparer filed the Sch. C for 2007 the IRS might have review your past year returns and added the Social Security Tax as tax due. When you file the amended return for 2007 attach a statement that the income is other income from your hobby writing books and the activity is not for-profit business. Also, replied to the letter from the IRS for tax year 2006 with the same statement.
Customer: replied 9 years ago. saved my weekend if not my life.:)
Expert:  Marvin,EA replied 9 years ago.

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