Self-employed Income

Self-employed individuals are often not sure of some of the many forms of “self-employed income” the IRS considers in their gross income calculation. As a result some self-employed borrowers incur a tax liability with the IRS due to the fact they do not claim these forms of income on their tax return. This comes as a great shock when the self-employed borrower gets audited by the IRS and is told their income was much higher than what was reported initially for the year in question.

Here are some types of self-employment income:
Sole proprietorship income and non-employment compensation
Fees paid to corporate directors
Partnership income from partnership operating business (unless limited partner)
Guaranteed payment from a partnership
Income derived from bartering
Rental income from real estate rent (if received as a real estate dealer)
Income paid to retired insurance agents based on commissions received prior to retirement
Interest received in a trade or business
Newspaper vendor’s income if vendor is 18 or over
Net earnings of members of the clergy (unless taken a vow of poverty)
Gains and losses by a dealer in options or commodities from dealing or trading in section 1256 contracts or property related to those contracts
A professional fiduciary who administers a deceased person’s estate

These are some sources of income self-employed individuals need to be aware of and make sure gets reported on their federal form tax return 1040 to avoid owing the IRS at some point in the future. If a taxpayer does have a tax liability as a result of under reporting then it would be advisable to contact a tax professional to inform the taxpayer of all options available to them for effective resolution.