Self-Employment or Other Income?

Taxpayers frequently have income reported on Form 1099-MISC. It may represent earnings from a trade or business that should be reported on Form 1040, Schedule C. If not, it generally is reported as other income on Form 1040. Of course, net income from a trade or business is subject to both income tax and the 15.3% self-employment tax, while other income generally is subject only to income tax.

However, while taxpayers can deduct a net operating loss from a trade or business, they may deduct their expenses incurred in generating other income only up to the amount of that income. Consequently, tax preparers must be able to determine whether income is trade or business income or other income, which isn’t always easy.