1099s for All Income

Today TaxMama® hears from G in the TaxQuips Forum, with a question that raises a common issue. Let me rephrase the issue. “I used a subcontractor (or paid for parts) on a job for a customer. I only got to keep a part of the income. The rest went to pay the sub or for the materials. Why does the 1099 show the full amount?”


Dear G,

The question you ask is one of the most common kinds of questions from people who run businesses where sales of (or reimbursement for) parts and supplies or subcontractors are an integral part of the payment you receive. Folks running these businesses have a very difficult time understanding the concept that 100% of the money you receive is taxable. ALL of it. Even the reimbursements.

I have seen some very scary, violent and aggressive behavior from folks who get 1099s for the full amount they’ve been paid by a customer or client (a 1099 which includes parts or reimbursements).

To avoid paying taxes on money you didn’t get to keep, you file a tax return.

You include 100% of the money you receive as income.

You deduct your expenditures for parts, supplies and other things for which you were reimbursed.  Those are part of your business expenses.

Incidentally, if you do want your business to succeed, I urge you to do one of two things:
1) Either learn about bookkeeping, so you understand your obligations with respect to your business accounting and tax reporting. You can find an easy, fun, free course here.
2) Hire a competent bookkeeper with experience in your industry.

Things will go much more smoothly for you – and your profits will increase.

And remember, you can find answers to all kinds of questions about running a business and other tax and business issues, free. Where? Where else? At www.TaxMama.com.

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