Does receiving a 1099-MISC require one to file a tax return even if he normally would not be required to file?
"Does he need to file a tax return in this situation? Will the IRS be concerned that he did not file even if he received a 1099? No. However, if you don't file the IRS may come back asking why, or ""make up"" a return for you assuming that the whole amount on the 1099-MISC is your net earnings. So in the end, I suspect you'll end up filing even though you don't have to, just to prove that you don't have to. Bottom line - if you have 1099 income (or any other income reported to the IRS that brings you over the filing threshold), file a return."
Welcome to the wonderful but oft confusing world of self-employment. Your regular job will withhold income for you and give you a W2, which tells you and the government how much is withheld.  At the end of the year uber will give you and the government a 1099-misc, which will tell you how much they paid you, but nothing will be withheld, which means you will owe the government some taxes. When it comes to taxes, you will file a 1040 (the big one, not a 1040EZ nor 1040A).  In addition you will file a schedule C (self-employed income), where you will report the gross paid to you, deduct your expenses, and come up with your profit, which will be taxable.  That profit goes into a line in the 1040.   You need to file schedule SE.  This says how much self-employment tax you will pay on your 1099 income, and it will be more than you expect.  Self employment tax is SS/Medicare.  There's a line for this on the 1040 as well.  You can also deduct half of your self-employment tax on the 1040, there's a line for it. Now, you can pay quarterly taxes on your 1099 income by filing 1040-ES.  That avoids a penalty (which usually isn't that large) for not withholding enough.  As an alternative, you can have your regular W2 job withhold extra.  As long as you don't owe a bunch at tax time, you won't be a fined. When you are self-employed your taxes aren't as simple.  Sorry.  You can either spend some time becoming an expert by studying the instructions for the 1040, pay for the expensive version of tax programs, or hire someone to do it for you. Self-employed taxes are painful, but take advantage of the upsides as well.  You can start a solo 401(k) or SEP IRA, for example.  Make sure you are careful to deduct every relevant business expense and keep good records in case you get audited. It is true that with a job that pays you via payroll check that will result in a W-2 because you are an employee, the threshold that you are worried about before you have to file is in the thousands. Unless of course you make a lot of money from bank interest or you have income tax withheld and you want it refunded to you. Table 2 and table 3 in IRS pub 501, does a great job of telling you when you must.  For you table 3 is most likely to apply because you weren't an employee and you will not be getting a W-2. If any of the five conditions listed below applied to you for 2016, you must file a return. You owe any special taxes, including any of the following. a. Alternative minimum tax. (See Form 6251.)    b. Additional tax on a   qualified plan, including an individual retirement arrangement (IRA),   or other tax­favored account.  (See Pub. 590­A, Contributions to   Individual Retirement Arrangements (IRAs); Pub. 590­B, Distributions   from  Individual Retirement Arrangements (IRAs); and Pub. 969, Health   Savings Accounts and Other Tax­Favored Health  Plans.) But if you are   filing a return only because you owe this tax, you can file Form 5329   by itself.   c. Social security or Medicare tax on tips you didn't   report to your employer (see Pub. 531, Reporting Tip Income) or on    wages you received from an employer who didn't withhold these taxes   (see Form 8919).    d. Write­in taxes, including uncollected social   security, Medicare, or railroad retirement tax on tips you reported to   your  employer or on group­term life insurance and additional taxes on   health savings accounts. (See Pub. 531, Pub. 969,  and the Form 1040   instructions for line 62.)   e. Household employment taxes. But if you   are filing a return only because you owe these taxes, you can file    Schedule H (Form 1040) by itself. f. Recapture taxes. (See the Form   1040 instructions for lines 44, 60b, and 62.) You (or your spouse if filing jointly) received Archer MSA, Medicare Advantage MSA, or health savings account  distributions. You had net earnings from self­employment of at least $400. (See Schedule SE (Form 1040) and its instructions.) You had wages of $108.28 or more from a church or qualified church­controlled organization that is exempt from employer  social   security and Medicare taxes. (See Schedule SE (Form 1040) and its   instructions.) Advance payments of the premium tax credit were made for you, your spouse, or a dependent who enrolled in coverage  through the Health   Insurance Marketplace. You should have received Form(s) 1095­A showing   the amount of the advance  payments, if any. It appears that item 3: You had net earnings from self­employment of at least $400. (See Schedule SE (Form 1040) and its instructions.) would most likely apply. It obviously is not too late to file for 2016, because taxes aren't due for another month. As to previous years that would depend if you made money those years, and how much. Per IRS regulations, if your stipend is not paying you for qualified expenses (primarily, tuition and books; explicitly not room and board or travel), it is taxable.  It doesn't require self-employment taxes (which are Medicare and FICA, normally paid in part by an employer), but it is taxable income from an income tax perspective.  You can generally deduct your books and such if you have your receipts - expenses 'required' by the institution for the coursework.  Do verify that the amount on the 1099-MISC reflects what you actually received in cash above and beyond the tuition waiver - don't assume the college did this the way you expect, or even properly.  Your bank statements should match the amount on the form. You should definitely include it in your gross income and pay taxes on it.  If you received alternate instruction, you should clarify that with the people doing the filing, and follow up with a supervisor perhaps (it's possible the volunteers helping at an event like this aren't familiar with this part of tax preparation). (Source, in addition to IRS regulations - I was my wife's tax preparer many of the years she was in her Ph.D. program.) "TL;DR: Get a tax adviser (EA/CPA licensed in your State) for tax issues, and a lawyer for the Operating Agreement, labor law and contract related issues. Some things are not suitable for DIY unless you know exactly what you're doing. We both do freelance work currently just through our personal names.   What kind of taxes are we looking into paying into the business   (besides setup of everything) compared to being a self proprietor?   (I'm seeing that the general answer is no, as long as income is <200k,   but not certain). Unless you decide to have your LLC taxed as a corporation, there's no change in taxes. LLC, by default, is a pass-through entity and all income will flow to your respective tax returns. From tax perspective, the LLC will be treated as a partnership. It will file form 1065 to report its income, and allocate the income to the members/partners on schedules K-1 which will be given to you. You'll use the numbers on the K-1 to transfer income allocated to you to your tax returns and pay taxes on that. Being out of state, will she incur more taxes from the money being now   filtered through the business? Your employee couldn't care less about your tax problems. She will continue receiving the same salary whether you are a sole proprietor or a LLC, or Corporatoin. What kind of forms are we looking into needing/providing when   switching to a LLC from freelance work? Normally we just get 1099's,   what would that be now? Your contract counterparts couldn't care less about your tax problems. Unless you are a corporation, people who pay you more than $600 a year must file a 1099. Since you'll be a partnership, you'll need to provide the partnership EIN instead of your own SSN, but that's the only difference. Are LLC's required to pay taxes 4 times per year? We would definitely   get an accountant for things, but being as this is side work, there   will be times where we choose to not take on clients, which could   cause multiple months of no income. Obviously we would save for when   we need to pay taxes, but is there a magic number that says ""you must   now pay four times per year"". Unless you choose to tax your LLC as a corporation, LLC will pay no taxes. You will need to make sure you have enough withholding to cover for the additional income, or pay the quarterly estimates. The magic number is $1000. If your withholding+estimates is $1000 less than what your tax liability is, you'll be penalized, unless the total withholding+estimates is more than 100% of your prior year tax liability (or 110%, depending on the amounts). The LLC would be 50% 50%, but that work would not always be that. We   will be taking on smaller project through the company, so there will   be times where one of us could potentially be making more money. Are   we setting ourselves up for disaster if one is payed more than the   other while still having equal ownership? Partnerships can be very flexible, and equity split doesn't have to be the same as income, loss or assets split. But, you'll need to have a lawyer draft your operational agreement which will define all these splits and who gets how much in what case. Make sure to cover as much as possible in that agreement in order to avoid problems later." "The contract he wants me to sign states I'll receive my monthly   stipend (if that is the right word) as a 1099 contractor. The right word is guaranteed payment, which is what ""salary"" is called when a partner is working for a partnership she's a partner in. Which is exactly the case in your situation. 1099 is not the right form to report this, the partnership (LLC in your case) should be using the Schedule K-1 for that. I suggest you talk to a lawyer and a tax adviser (EA/CPA) who are licensed in your State, before you sign anything." At the end of each calendar year the mutual fund company will send you a 1099 form. It will tell you and the IRS what your account earned. You will see boxes for: You will end up paying taxes on these, unless the fund is part of a 401K or IRA. These taxes will be due even if you never sold any shares. They are due even if it was a bad year and the value of your account went down. Most if not all states will levy an income tax yon your dividends and capital gains each year. When you sell your shares you may also owe income taxes if you made a profit. The actual taxes due is a more complex calculation due to long term vs short term, and what other gains or losses you have. Partial sales also take into account which shares are sold. When you invest (say $1000) in (say 100 shares) of a mutual fund at $10 per share, and the price of the shares changes,  you do not have a capital gain or loss, and you do not have to declare anything to the IRS or make any entry on any line on Form 1040 or tell anyone else about it either. You can brag about it at parties if the share price has gone up, or weep bitter tears into your cocktail if the price has gone down, but the IRS not only does not care, but it will not let you deduct the paper loss or pay taxes on the paper gain.  What you put down on Form 1040 Schedules B   and D is precisely what the mutual fund will tell you on   Form 1099-DIV (and Form 1099-B), no more, no less. If you did not report any of these amounts on your previous   tax returns, you need to file amended tax returns, both   Federal as well as State, A stock mutual fund invests in stocks and the fund manager may buy and sell some stocks during the course of the year. If he makes a profit, that money will be distributed to the share holders of the mutual fund. That money can be re-invested in more shares of the same mutual fund or taken as cash  (and possibly invested in some other fund). This  capital gain distribution is reported to you on Form 1099-DIV and you have to report sit on your tax return even if you re-invested in more share of the same mutual fund, and the amount of the distribution is taxable income to you. Similarly, if the stocks owned by the mutual fund pay dividends, those will be passed on to you as a dividend distribution and all the above still applies. You can choose to reinvest, etc, the amount will be reported to you on Form 1099-DIV, and you need to report it to the IRS and include it in your taxable income. If the mutual fund manager loses money in the buying and selling he will not tell you that he lost money but it will be visible as a reduction in the price of the shares. The loss will not be reported to you on Form 1099-DIV and you cannot do anything about it.  Especially important, you cannot declare to the IRS that you have a loss and you cannot deduct the loss on your income tax returns that year. When you finally sell your shares in the mutual fund, you will have a gain or loss that you can pay taxes on or deduct. Say the mutual fund paid a dividend of $33 one year and you re-invested the money into the mutual fund, buying 3 shares at the then cost of $11 per share. You declare the $33 on your tax return that year and pay taxes on it. Two years later, you sell all 103 shares that you own for $10.50 per share.  Your total investment was $1000 + $33 = $1033. You get $1081.50 from the fund, and you will owe taxes on $1081.50 - $1033 = $48.50. You have a profit of $50 on the 100 shares originally bought and a loss of $1.50 on the 3 shares bought for $11: the net result is a gain of $48.50. You do not pay taxes on $81.50 as the profit from your original $1000 investment; you pay taxes only on $48.50 (remember that you already paid taxes on the $33). The mutual fund will report on Form 1099-B that you sold 103 shares for $1081.50 and that you bought the 103 shares for  an average price of $1033/103 = $10.029 per share. The difference is taxable income to you. If you sell the 103 shares for $9 per share (say),   then you get $927 out of an investment of $1033 for   a capital loss of $106. This will be reported to you   on Form 1099-B and you will enter the amounts on   Schedule D of Form 1040 as a capital loss. What you actually pay taxes on is the net capital gain, if any, after combining all your capital gains and losses for the year. If the net is a loss, you can deduct up to $3000 in a year, and carry the rest  forward to later years to offset capital gains in later years. But, your unrealized capital gains or losses (those that occur because the mutual fund share price goes up and down like a yoyo while you grin or grit your teeth and hang on to your shares) are not reported or deducted or taxed anywhere. It is more complicated when you don't sell all the shares you own in the mutual fund or if you sell shares within one year of buying them, but let's stick to simple cases. I'm not sure 1099-MISC is what you should expect. Equity means ownership, and in LLC context it means membership. As an LLC member, you'll get distributions and should receive a K-1 form for tax treatment, not 1099 or W2. If the CEO is talking about 1099 it means he's going to hire you as a contractor which contradicts the statement about equity allocation. That's an entirely different situation. 1) Specifically, would the 1099-MISC form be used in this case? 1099-MISC is used to describe various payments. Depending on which box is filled, the tax treatment may be as of employment income (subject to SE taxes) or passive income (royalties, rents, etc - subject to various limitations in the tax code). 3) If this is the only logical method of compensation (receiving a % of real estate sales), how would it be taxed? That would probably be a commission and taxed as employment income. I suggest to get a professional tax adviser consultation on this issue, with specific details, numbers, and kinds of deals involved. You can get gain or lose a lot of money just because you're characterized as a contractor and not LLC member or employee (each has its own benefits and disadvantages, and you have to consider them all). 4) Are there any advantages/disadvantages to acquiring and selling   properties through the company as opposed to receiving a % of sales? Yes. There are advantages and there are disadvantages. For example, if you're using a corporation, you can get salary, if you're a contractor you cannot. There are a lot of issues hidden in this distinction (which I've just discussed with KeithS in this argument).