Today TaxMama hears from Ray in Ohio, who has a problem. “My son and I started working for a contractor in Feb 2006 as a sub. The 1099 was in his name and SS#. We worked on a 60-40 split. The 60 came to me, with all expenses paid out of my pocket. We have not filed any taxes since then. We are now in trouble (duh). Should I try to file as a partnership or a sole proprietor with him paying me? Then how would the expenses work out?”
Oh well, better late than never.
First of all, the last thing you want is to file as a partnership. The late fees for not issuing the K-1s are pretty stiff.
For now, you each want to file your own Schedule C. You can always set up a different arrangement for 2010. Your son will pick up all the income, since the 1099-MISC was issued to his Social Security number. He will issue you a Form 1099-MISC for your share of the income. The late fee for a late 1099-MISC is only $50. (see page 13) https://www.irs.gov/pub/irs-pdf/i1099gi.pdf
As to the expenses? You will each be filing your own Schedule C, being in your own separate business. There will be no problem for you to deduct your expenses on your Schedule C.
Naturally, you will owe income taxes, self-employment taxes, penalties and interest. If it’s too much to pay all at once for 2006, 2007, and 2008, you can always ask for an installment agreement or an offer in compromise.
And remember, you can find answers to all kinds of questions about late filed tax returns and other tax issues, free. Where? Where else? At TaxMama.com.[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
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