A friend receive 20k in 1099-misc for participation in clinical research studies and spent that money...?

with out consideration for S/E and TI. As far as I can tell he is now in a world of hurt.





Might anything apply to his situation that would lessen his tax burden?





He is 23 years old and is contemplating not filing a return for 2007.

A friend receive 20k in 1099-misc for participation in clinical research studies and spent that money...?
Not filing will cost him more than filing and not paying.
Reply:Hi: I have seen this before. It really is a shame. Unless you made a very low income and have a lot of deductions, you are going to owe a substantial amount of income tax. If your dependent is your child and is under age 17 as of December 31, 2007, you can receive up to a $1000 credit, called the Child Care Credit. It's too late for you to launch a business effective in 2007. If you wanted to do a fiscal year arrangement, the IRS would deny you permission or make you do a calendar year first. So you cannot take those deductions nor the large Section 179 deduction. The only thing you can do is start a traditional IRA by April 15. That you can do to blunt the impact of the awful tax bill. A Roth IRA is not tax deductible.





If your employer refuses to take out tax, you should send in estimated tax on an IRS Form 1040-ES. You can do it electronically with the IRS. The IRS will allow you to slide for a quarter, but no more. For 2007, you can ask the IRS to forgive the penalty, but there's no chance. I think I saw one time where they forgave the interest, but it was not much interest. I've never seen the Agency forgive the penalty. Ask your employer to give you your W-2. If they refuse, ask if they are going to mail a 1099-MISC that has box "7" - Nonemployee income - filled in. That means you have to fill out a Schedule C. Go through your checkbook, your credit card bills, your total mileage for 2007, the miles you drove while you were on the job visiting those families, the equipment you had to buy, etc. What I am saying is that you need to obtain all the legal deductions you can. Begin saving ALL your receipts and keep a diary of your expenses. If you don't know the mileage you drove, look at the State inspection receipts. The mileage is there and you can interpolate. Think of work related cell phone calls, look at your bills, etc. If you are sent a 1099-MISC with Box 7 filled in, you have to pay what the IRS calls Self-Employment tax. You have to fill out a Schedule SE-Form 1040 and eFile or mail along with the other income tax forms. This is actually social security tax and none of us can out of that tax either, unless you register as a member of a "religious order", as the IRS calls it. If you live in one of the 42 States that have income tax, you have to pay State income tax, also. I know all this because I had clients in this very same situation. Don't give up. Get something to hold your receipts: a shoebox or anything to start. As the years go by, you will become better and better organized.


Complete an IRS Form SS-8 to get an official ruling on your status. This will help you get unemployment if you get fired. When you file your income tax return, you can attach Form 8919 Uncollected Social Security and Medicare Tax on Wages and only pay the employee's half of social security. You will still have to cough up all the income tax. IRS and the states are stepping up enforcement as the abuse is severe. These people are trying to get out of paying Workers Compensation premiums and their portion of the FICA tax. You have insure your employees if you have more than 2 employees in most States. Social Security payroll taxes are collected under authority of the Federal Insurance Contributions Act (FICA). The payroll taxes are sometimes even called "FICA taxes." In the original 1935 law the benefit provisions were in Title II of the Act (which is why we sometimes call Social Security the "Title II" program.) The taxing provisions were in a separate title, Title VIII. There is a deep reason for this, having to do with the constitutionality of the law (see discussion of the Constitutionality of the 1935 Act). As part of the 1939 Amendments, the Title VIII taxing provisions were taken out of the Social Security Act and placed in the Internal Revenue Code. Since it wouldn't make any sense to call this new section of the Internal Revenue Code "Title VIII," it was renamed the "Federal Insurance Contributions Act."





The IRS is aware of this severe and growing problem and began cracking down on it hard about 3 years ago.
Reply:He received a 1099. That means that it was reported to the IRS. If he just doesn't file, they'll come after him for not only the taxes he owes anyway, but also interest and penalties. This isn't a maybe - it's a 100% chance they will. So not filing is a VERY bad idea.
Reply:Even if he can't pay, he MUST file a return. Failure to file a return would INCREASE his bill by another 22.5%.