My wife is a massage therapist and made $16,500 in nonemploee compensation. I was wondering if the $2000 that she contributed to a traditional IRA would reduce her income to $14.500. Do I change the amount of income myself to $14,500 (different then the $16,500 on the 1099 thats being reported by employer) or is this contribution calculated into the AGI?
2007-02-02 03:48:05 · 5 answers · asked by chuck 2 in Business & Finance ➔ Taxes ➔ United States
The IRA contribution does not directly reduce her income. So, she'll have to report $16,500 as income and as such be subject to self employment taxes on the whole amount. The IRA contribution will be used as a deduction and figured when calculating AGI.
I'd consider setting up an LLC or S Corp if she's going to continue getting non-employee income. That makes it a lot easier to take business expenses and separates liability.
2007-02-02 03:55:08 · answer #1 · answered by Dean 3 · 1⤊ 0⤋
You account for the IRA contributions separately. Do NOT reduce the 1099 income by the contribution amount! The full 1099 income (less legitimate business expenses) is subject to Self-Emploment tax (15.3%) even though the amount of the IRA contributions are exempt from income tax.
2007-02-02 11:54:50 · answer #2 · answered by Bostonian In MO 7 · 3⤊ 0⤋
Report the amount on the 1099 as it is. Since this is the amount that is being reported to the IRS, they will need to match it with what you file. On the 1040, you have the ability to report the IRA contribution as a separtate item.
2007-02-02 12:00:00 · answer #3 · answered by kam 5 · 0⤊ 0⤋
No don't change anything on a 1099. You can claim the deduction on the 1040 AGI or whatever number they have assigned the IRA deduction form.
2007-02-02 11:52:28 · answer #4 · answered by biker_beeotch 2 · 2⤊ 0⤋
I'd listen to the old guy up there :)
2007-02-04 22:18:22 · answer #5 · answered by ...Just Me :) 2 · 0⤊ 0⤋