The IRS wants everyone to report all of their income so they can collect a tax on it. Yes Virginia, there are folks out there that won’t declare some income if they think the IRS can’t find out about it.
To get us to tattletale, the IRS invented form 1099. If you sing for pay and the payer doesn’t withhold any taxes, you are considered an independent contractor and will probably get a 1099 MISC. You should report this income on schedule C of form 1040. Remember, the IRS already has it in their computer.
But when should you be reporting to the IRS that you are a payer? Well, if you file schedule C, you are considered to be a Sole Proprietor running a business. After all, business is 50% of show business. You are then required to issue a 1099 MISC to anyone you paid for their services. This includes your accompanist, coach, agent, voice teacher, manager, etc. There are penalties for non-compliance. The requirements begin if you paid them $600 or more in any calendar year.
Corporations are excluded, so if your manager or agent works under a corporation, there is no 1099 requirement for them. Also there is no requirement if you pay a US non-resident for work they do in another country. So the local Italian coach you use in Milan, who doesn’t know anything about the IRS anyway, is exempt from getting a 1099 from you. If you buy a tangible item such as a piano, that doesn’t meet the definition of a service.
Three 1099 copies need to be filled out. One goes to the IRS to tattletale, one to the person you paid so you can give them a heads up that you tattle-taled, and the third you keep for your files to show that you complied in case you are ever questioned by the IRS. You also need form 1096 which is a summary of what forms you are sending.
You will have to know the payee’s social security number for the 1099. The IRS provides form W-9 to give to the payee to fill out and return to you. It is your official request for their social security number. To get forms and instructions from the IRS call 800/829-3676 or go to http://www.irs.ustreas.gov/ and look for the link to forms.
Years ago, I had a client who was studying voice with a very famous opera singer. He was actually too afraid to ask Madame So-and-So for Madame’s social security number. After all, Madame insisted he leave an envelope with cash (no checks please) on the piano at the start of each lesson and he got the distinct feeling Madame’s world did not include the IRS. He felt that if he brought the subject up, he would be banished from the studio. Easier for him to pay an IRS penalty then to incur the wrath of Madame. He well remembered her Lady Macbeth!
Bio:
Gordon Voorhees is an Enrolled Agent (EA) whose tax practice has been located in NYC for over 30 years. His client base is primarily in the performing arts. Enrolled Agents are Federally Authorized Tax Practitioners who have technical expertise in the field of taxation and are empowered by the United States Treasury Department to represent taxpayers before all administrative levels of the IRS. For more information about EA’s, please visit www.naea.org
