1099-NEC w/o additional issue. Net Profit was $20 USD and it was a job/hobby for my wife. How can I get rid of the 'needs review'?

[romanojc]

It is not a problem if you file your income taxes if the note in 2021 shows in red 'Needs review'

[LenaH]

Once you input your 1099-NEC, you should answer all of the questions after the input screen so it flows to your return correctly. If it has not been assigned to either Other Income or a Schedule C (self-employment income), TurboTax will give you an error message. If you would like to classify your 1099-NEC as hobby income, you will have to report it as Other Income. It is important to note that hobby-related expenses can no longer be deducted. 

Please follow the instructions below:  

1. Open your return.
2. Search for 1099-NEC with the magnifying glass tool at the top of the page.
3. Click on the Jump to 1099-NEC link at the top of the search results. 
4. Click Edit next to your 1099-NEC. 
5. Continue past the information entered. 
6. Describe the reason for your 1099-NEC. 
7. Choose the option This is not money earned as an employee or self-employed individual, it is from a sporadic acitivity or hobby (this is not common) on the page Does one of these uncommon situations apply?
8. The amount from your 1099-NEC will flow to Other Income. 

Now, your 1099-NEC will flow your income to Other Income (Line 8z of Schedule 1). 

1. Click on Tax Tools on the left hand side.
2. Click on Tools.
3. Click on View Tax Summary.
4. Click on Preview my 1040 on the left hand side.
5. Search for Schedule 1 - Additional Income & Adjustments to Income.
6. A description of your Other Income and the amount should be listed in Line 8z. 

[Gavmister]

hi! do you know if a corresponding is ALSO generated? Or if the IRS flags an 1099-NEC without a schedule C?

Basically, I also have a 1099-NEC that I am filing as a hobby. I have a fear that even though I am doing it properly through the website, that the IRS system will automatically flag any 1099-NEC that doesn't have a schedule C. I have been advised from a CPA that the best way to cover my basis, if he was filing, is he would do the schedule C but write off the entire amount, with a note that says "Non SE income, filing as hobby on 1040 as Other income." This way the IRS software isn't confused as to why a 1099-NEC doesn't have a schedule C along with it. But it also would be filing as hobby.

Basically, he just doesn't want the system to AUTOMATICALLY flag a 1099-NEC without a matching schedule C, even if properly adding it to other income on the 1040. I see this question was asked last year though, do you happen to know if there have been any issues with this kind of thing? Or does just fiing it as hobby work this way? I just don't want to get a letter from the IRS all because of a computer system, if that makes sense

[JamesG1]

You are correct that the IRS is expecting IRS form 1099-NEC income to be reported on IRS form Schedule C.  See this TurboTax Help.

The method that you outline would: 

• acknowledge the 1099-NEC as Schedule C income,
• would clearly point out that the income was ultimately reported as hobby income, and
• correctly report the income as hobby income.

An IRS agent reviewing such a return should appreciate the care and attention that was paid in reporting the income.

Since TurboTax Online requires a higher priced product to prepare an IRS form Schedule C, this method does not appeal to all TurboTax customers.

@Gavmister 

[Gavmister]

right so mine was 26k. but it wasnt payment, it;s the tax value of items that i reviewed. long story on that one.

but i'm trying to figure out the best way to report this within the TT Online software. do i upload it twice? or do i just do the nec filing but list as hobby, and the IRS will see a schedule 1 with the matching amount. I just don't want to get an auto-flag due to lack of schedule c

[DianeW777]

It depends. Based on the amount it would seem this was a business, self employment activity.  However, if you believe it was a hobby, you can choose to report it that way but you will not be allowed to reduce the gross amount by any expenses that may be associated with it.  Below is information to help you decide if it was self employment or a hobby.

Any income received for services or goods is taxable.  You have to decide if it's a hobby or a business for tax purposes. Review this page from IRS:

• Business or Hobby?

Key elements:

1. A hobby requires you to report the income you received and under the current tax law, Tax Cuts and Jobs Act (TCJA), no expenses are allowed to be used to reduce the money collected even if you itemize deductions.
2. A business allows you to deduct the costs necessary to obtain the income.  The law explains that 'you must be engaged in the activity to produce a profit'.  The test under IRS is that you must show a profit three out of every five consecutive year.

Once you decide what type of income this is you can use the links below to see how to report.

• How do I report hobby income?
• Where do I enter Schedule C

The IRS will be looking for the amount be on your tax return in either category.

[Gavmister]

Yea, the amount is high, but I don't make a penny off of it, nor is it anything with any kind of business records or process, nor could I live off of it. It's just random stuff like an air fryer, legos, shampoo, whatever that I get for "free" and I just have to write a review on amazon's website. So they give us this estimated tax value of the item, which in it of itself is flawed because the value of the product changes, but whatever. Point being, I'm not making any kind of profit off of it, it's just this arbitrary number of value. So I feel like that is a hobby, and my CPA agrees, it's just the very fact that it's a 1099-NEC is what is throwing him. But as long as it's normal for NEC to be on a schedule 1, I'm good

[Vanessa A]

"Bartering is the exchange of goods or services. A barter exchange is an organization whose members contract with each other (or with the barter exchange) to exchange property or services. " IRS Topic 420

Amazon is using the value that they would sell the air fryer, legos or shampoo for the amount they include on the 1099-NEC.  This could easily be seen as a side job as a product reviewer.

You do not have to have cash in your hand to be considered to make a profit.  A profit is defined as gross income minus adjustment to income.  As mentioned, bartering is considered income. 

Be aware, if you choose to report this as hobby income and the IRS does flag it and audit you and determines that it should have been self-employment income, you could be subject to penalties and interest for underreporting your tax liability. 

[Gavmister]

I understand what you're saying, but there are 2 things you listed incorrectly:

1) In the Amazon Vine terms and conditions, it states explicilty that it is not required to write a review, and no action items are expected. Now, in order to get selected into the program, they look at users who previously wrote review and then they ask if they want to join. And yes, they can throw you out at any point, but this actually is NOT bartering, as I am in no way contractually obligated to write any reviews. Amazon goes out of its way to make sure that is clear when saying that we're not required to do anything for these products, and they only look at our history of reviews to decide who to keep in the program.

2) There are NOT items being sold by Amazon, they are product samples being given by the companies themselves, using Amazon to distribute them with the hope that we will like them and write a good review. Which again, we are not required to do so, but that is what they are hoping for. So this is not something Amazon is giving us that they would otherwise be selling and is therefore the value of the item to them

3) Something I mentioned on point 1- this is not promoting, it's reviewing. Part of the IRS criteria is if I have previously done similar activity for a profit. I have written thousands of reviews on Amazon and other websites, never for a profit of any sort, until Vine. So there is a history of the same activity, with no profit

So yea, I don't see this being barteting at all, given that I in no way contractually agreed to do anything with it

[GeorgeM777]

The goods you received are a form of compensation--which Amazon believes have a value of $26,000--so go ahead and report the 1099-NEC as suggested by the CPA and as suggested by @JamesG1.  If the IRS believes that your reported hobby income should have been characterized as Schedule C income, you will have your evidence in support of proving that your hobby income was correctly reported.  The fact that the decision is yours whether to write a review or not, could be viewed as one element in support of a finding that you were a self-employed person; however, that is just one element.  There are more than several elements that the IRS will look at to determine whether someone is engaged in a business activity versus a hobby.  Here is the IRS' list of factors:

• Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.
• Whether you have personal motives in carrying on the activity.
• Whether the time and effort you put into the activity indicate you intend to make it profitable.
• Whether you depend on income from the activity for your livelihood.
• Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
• Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.
• Whether you were successful in making a profit in similar activities in the past.
• Whether the activity makes a profit in some years and how much profit it makes.
• Whether you can expect to make a future profit from the appreciation of the assets used in the activity.

IRS FAQs_How to Distinguish between a Hobby and a Business

@Gavmister 

[Gavmister]

Right, this is obviously something that I think can be argued either way, I truly get both points of view. To me, it's worth trying as a hobby, since I do have an argument, and i'd rather risk a couple hundered bucks in interest vs 4 thousand in SE tax.

So with all of this in mind- my question is, can I do the way my CPA outlined in the TT Online software? Can I file 1099-NEC with the deduction, and then add another 1099-NEC line and do it via the less common income/hobby line? What would be in the instructions on how to do it this way.

Thanks!

[GeorgeM777]

Yes.  In TurboTax online, select Wages & Income (under Federal, left margin) and scroll down the screen to Self-Employment.  Click on Start and enter your 1099-NEC information.   Then follow these steps:  

1. On the screen Here's you Amazon Vine [or whatever business name you enter] services info, select the tab Add expenses for this work.  
2. On the next screen, you should see several categories of expenses, place a check next to the box, Other miscellaneous expenses, then press Continue.  
3. On the next screen, click Start across from Other miscellaneous expenses and enter a description and the amount.  The description the CPA suggested will work, or something similar if you prefer.  We assume the amount you enter will be the offsetting amount.
4. Select Continue and move through the rest of the section.

The above steps will include the description and the offsetting amount on Schedule C.  Because the profit and expense offset each other, the net Schedule C income will be zero.  

To enter the Amazon Vine 1099-NEC as other income, follow these steps:

1. To enter other income in TurboTax online, click on Wages & Income, scroll down the page to Less common income, click on the drop-down arrow and select Miscellaneous Income.  
2. From the list select Other reportable income and respond to the questions on the screens that follow.   

@Gavmister 

[Gavmister]

Perfect!!! Thank you so much! Okay so this seems like the best way for me to do it, it's the most "honest" way to show the IRS, and then I will go from there.

thanks again!

[sr3333]

how do i do this on TT desktop 2023?

@GeorgeM777 

[sr3333]

@LenaH 

how do i enter this in TT desktop 2023?