IRS forces Employer to Change Status of Worker from Independent Contractor to Employee

Janice asks:

Hi!  I am a court transcriber.  I have always been a subcontractor (24 years).  I always paid estimated taxes and filed Schedule C and self-employment tax, business use of my home.  I do all my work from home.   I do the bulk of my work for a company called CRA.  Last year the State of Vermont, Department of Labor, determined that I was not a subcontractor for this company, that I was an employee.  Anyway, this year we got W-2's.  Taxes were deducted. I also did a small amount of work ($6,000) for others which I did get a 1099 for.  

 My question is this:  I still have all the same expenses I had previous -- supplies (paper, toner, binders, etc.,), services such as trash pick-up, internet, postage, equipment repairs -- and also I bought a new computer for my work last year -- all the stuff it takes to run my home office.   I have to report my W-2 income on Line 7 of the 1040.  I used to report it on the Schedule C, Line 1.  On Schedule C, Line 1 this year I only put my $6,000 1099 income, and went ahead and  put all my expenses on the Schedule C, as I have in the past,  I come up with a huge loss -- which is not accurate.   How do I take advantage of all my expenses while having a W-2 income?  As I said, the only thing that's changed is I have a W-2 and the company is sending taxes in for me, instead of my doing it myself.   Thanks for any help you can give me

My reply:

Hello Janice!

How you will need to report things this year....

W-2 income on line 7 as you stated.  Then the portion of the expenses that are related to that income belong on Form 2106, Employee Business Expenses.

Then you'll still have your Schedule C with your Form 1099 income and the portion of your expense that relate to that income.

I hope that makes sense.

Best wishes,
Gina

http://GLGcpa.com