Employee and self-employed income and expenses must be kept separate.

Hi June,

Question. My wife, who is an INDIE, started working part-time this year for a company that will issue her a W-2 at the end of the year. They are also doing the withholding taxes. She is still doing her independent contractor work with several other clients, usually in the morning before she goes to the part-time work location (out of her home office).

How do we report her W-2 income? I think she gets a 1099 from her other clients. The simplest for us would probably be to keep it within her sole proprietor business tax forms.

Thanks, we are enjoying your book, but couldn't find this question in it.

Dan


Dear Dan,

Glad you are enjoying my book, Self-employed Tax Solutions. Thanks for letting me know.

You didn't find the specific answer to your question in Self-employed Tax Solutions because yours is a how-to question regarding tax return preparation I do not encourage indies to prepare their own returns and my book doesn't explain how to prepare a tax return for a self-employed.

You will find the following in my book:
Simply stated: if taxes are withheld it's W-2 income; and if no taxes are withheld it's self-employed income...
... It is important to understand the distinction and to keep them separate in your records. Why? Because they are treated differently on your tax return and the tax you pay on each is not the same.

Tax returns for indies are complex. Your question indicates a lack of basic understanding of the difference between the two types of income. If you do your own return you'll very likely cheat yourself.

Now to answer your question:
You cannot combine the two. You must keep the income and expenses related to W-2 income completely separate from the indie business income and expenses. Although on the same 1040 tax return each kind of income uses different forms within that 1040 return.

Use a tax pro or go to H&R Block. Don't mess yourself up.

Best,
June