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I had started an online business in 2014, due to unforeseen…

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Hello,I had started an online...
Hello,I had started an online business in 2014, due to unforeseen circumstances, I couldn't run the business as I wanted, so, I pretty much gave my wife the business to run. Since the business started, everything was registered under my name, but she was the one working and running the business. All the revenue is handled via PayPal, not a business bank account. The PayPal is registered under my name. Last year, I managed to update the business records with the state of Washington and I finally added her name to the state paperwork. Even though, we had already changed the Operating Agreement a while ago, so she was technically the business owner for a while.So what's the problem...The business has 2 sources of income, digital sales, which are processed via PayPal, and Ad revenue which is paid to us by an ad company. Therefore, we get 2 1099 forms, one from PayPal, and another from the Ad Company. However, the Ad company pays us via PayPal, so PayPal's 1099 already has the Ad Companies income. One of my concerns is that those 1099 got dually reported to the IRS. How would I fille that? Or even explain it properly?Now, my second concern is the following:The unforeseen circumstances that made me give the business to my wife prevent me from working, so all the income is supposed to be under my wive's name. But, since I had started everything under my name, we never changed anything regarding the PayPal or Ad company since we were married. That being said, how I can I fille my taxes and explain that even though those 1099 were reported to my EIN and SSN, I didn't actually get the money, my wife did.Someone mentioned to me I could just file taxes under my name but say I paid her 100% of the income we made, and that would put my income at $0 and give her all the income.Again, the PayPal account and Ad Company account are both registered under my name. But, in our Operating Agreement, my wife is the legal owner of 100% of the business, and the business has an EIN. Sadly, PayPal reports to EIN and SSN, just like the Ad Company. And even though the income got reported under my SSN, I never got it, how would I file this then?
Submitted: 1 month ago.Category: Tax
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Customer reply replied 1 month ago
I forgot to say this, it's a Washington State company, but we don't have any local sales, everything is digital and coming from all around the world, not Washington State directly. Also, I have been living in Puerto Rico for the past 3 years, I don't know if that changes anything regarding the tax filling, since it's a federal filing.
Answered in 11 hours by:
3/13/2018
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 1 month ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 13,997
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified

Hi. My name’s Lane …

I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, to clients on three continents, since 1986.

I’m reading your question now.

Bear with me a moment while I type up my response.

….

Then if you have further questions we can go from there.

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 1 month ago

You may not have NEARLY the issues that you think here, if you file a joint return. On a joint return, it's the total household income (taxed at the higher brackets, lower rates on the same amount of income as compared to single filers or those married filing separately) that matters.

...

The tax at the end of the return will be a product of what EACH (both) of your income, deductions, and withholding do to the bot***** *****ne for the household.

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Second, IRS knows that the rules can require double reporting. Since the new rules around 1099-K's for merchant services and processors such as paypal, they see this all of the time.

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Quite honestly this is problem of IRS' own making. There are rules around needing to send a 1099-MISC any time that payments are more than $600 to the payee and the rules for merchant services requiring a 1099-K to be send when there are 200 transactions and $20,000 in revenue overlap all of the time.

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As long as one of the amounts is reported, the IRS system has been adjusted to allow for that overlap, when checking 1099s sent to them with 1099s reported on returns.

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As a passthrough, the net profit would end up on the joint return regardless of whether it comes from one of you or the other.

...

Please let me know what questions you have from here.

...

Lane

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 1 month ago

Now, if are filing separately, you CAN do what you mentioned. FIle a schedule C with total income attributed to you with that same amount as an "other expense."

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Other expenses on a schedule C cause a separate statement to be printed, where you can label the expense item as "income should be reported to XYZ LLC. As per operating agreement __________ ________ is the single member.

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 1 month ago

Please let me know if you have ANY questions at all, before rating me.

If this has helped, and you DON’T have other questions … I'd appreciate a positive rating (using the stars on your screen, and then clicking “submit")

That’s the only way JustAnswer.com will credit me for the work.

But again, let me know if you need more here,

Lane

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Customer reply replied 1 month ago
Hello,Thanks for the answer.The main problem I have is that I currently receive Veteran Affairs, Involuntary Unemployability and they want me to apply for SSDI because of my disabilities. However, because I didn't change the PayPal and Ad Company financial information Information, everything got reported under my social security.The above being said, I was told I could do a 1099 Misc and issue it to my wife, writing all my income as an expense to her. However, when I searched online, I found that you can't write a 1099 Misc to your spouse.In sum, my main problem is that 1099's were reported under my social security to the IRS, I am not sure if they also got reported to the social security administration, but, since I didn't actually run the business, how could I explain this in my taxes? What would be the best approach that I could take?Thanks for your time responding this and my apologies for the late reply.PS. By having VA Unemployability, I cannot work, since they are paying me a substantial amount of money since I can't work.
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 1 month ago

That business about not giving a 1099 to the spouse doesn't apply here.

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Giving the 1099 to the LLC (which happens to be owned by your spouse) is exactly what IRS proposes when someone sends a 1099 to the wrong entity.

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As long as you explain in the statement for "other expenses" that you are not the LLC member, as per the LLC operating agreement and that the substance here is that the LLC (owned by your wife) should have received the 1099 and not you, they will accept.

...

However, Not unrelated to the no 1099 to spouse issue, if you file jointly, it all still flows through the joint return

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 1 month ago

I'm on the east coast here (so after midnight). It's getting quite sleepy in here.

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We can discuss this more tomorrow if you need.

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But again, I've handle this issue this way for year with clients, and never had a problem.

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IRS uses a doctrine called Substance over form (you might want to google the phrase).

...

And if she truly owns the LLC and is the person operating here, the substance is that the income should be attributed to the LLC (of which she is the only member)

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Lane
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 13,997
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Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986

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