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I have line 21 income with SE but it is not a business. California is requesting Form 3514 line 18 wanting business information. How do I clear this to efile?

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itonewbieAnswer

Level 15

FWIW, CA actually published an information sheet with a set of factors and weight given to each for the determination of whether a product demonstrator is an employee or independent contractor.

https://www.edd.ca.gov/pdf_pub_ctr/de231pd.pdf

---------------------------------------------------------------------------------Still an AllStar

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TaxGuyBill

Why is income subject to SE tax while not a business on Schedule C?

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robinweaverAuthor

Level 4

She’s a waitress so it’s not a business.

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TaxGuyBill

Now I'm trying to figure out how a waitress would have Line 21 income.

A waitress is almost positively an employee. All taxable pay should be on the W-2. If it is not on the W-2, the W-2 should be corrected or Form 4852 should be filed.

If employer was treating her as an Independent Contractor, Form 8919 should be filled out.

If for some weird circumstance she really is an Independent Contractor, it would be a business on Schedule C.

George4Tacks

Level 15

This sounds like it might be an incorrect method for the employer reporting tips. @robinweaver needs to look into this more carefully before signing a tax return.

Answers are easy. Questions are hard!

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robinweaverAuthor

Level 4

To be specific, she's a shot girl working sporadically for a liquor company. It's a marketing thing where she offers free shots and talks about the product. It's not her tips, it's what they pay her for each event.

George4Tacks

Level 15

Ah! Just like those product demo people at Costco. In an ideal world, they would be an employee of the liquor company.
Back to your original question. Fill out the 3514. It sounds like she is being treated as an indepent contractor - Occupation "Product Demonstration". Several of the items accept a blank space. Look at the instructions.

Answers are easy. Questions are hard!

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TaxGuyBill

I still don't see it. In my opinion, either (a) it it is a business and Schedule C should be filed, or (b) SE tax does not apply.

itonewbie

Level 15

Based on various Rev. Rulings, the bar for when net earnings from an activity would consistent self-employment income subject to SE-tax is lower than the more stringent considerations for §162 trade or business. As a general rule, the taxpayer would be deemed to be engaged in a trade or business for purposes of §1402 and §1401 if he/she engages in the profession or occupation for profit and with sufficient regularity but not as an employee. So, it is ***possible*** for income reported on 1099-MISC to be reported on Line 21 but still be subject to SE-tax.

In this particular case, assuming the taxpayer is indeed an independent contractor and she pursues similar opportunities on a recurring basis, it could be difficult to argue that the income should not be subject to SE-tax given the profit generated in spite of the activities not being continuous and substantial.

---------------------------------------------------------------------------------Still an AllStar

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TaxGuyBill

I haven't read the Revenue Rulings, but §1402(c) says the term "Trade or Business... shall have the same meaning as when used in section 162" (with a few exceptions).

So to me, that means if it a business, it is subject to SE tax; if it is not a §162 business, it is not subject to SE tax.

itonewbie

Level 15

I know. It's not very consistent but I can understand why the IRS bifurcates on that.

On the other hand, it is entirely possible for the income not to be subject to SE-tax but the activity will need to be irregular and that the individual probably should not be pursuing prospects, holding oneself out as being in that profession or occupation.

---------------------------------------------------------------------------------Still an AllStar

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