Internal Revenue Service United States Department of the Treasury
Level Basic Advanced Military International

Income — Business; Form 1040, Line 12

Business Income or Loss Information

Interview and Documents

Business income information may come from the following:

  • Forms 1099-MISC, Miscellaneous Income, box 7, Nonemployee Compensation
  • Forms W-2, Wage and Tax Statement with Statutory Employee checked in box 13
  • Taxpayer's books and records

Based on your interview and your review of the taxpayer's intake and interview sheet, you may discover that the taxpayer or spouse had business income from being self employed or working as an independent contractor. Taxpayers are self-employed if they carry on an unincorporated trade or business as a sole proprietor or independent contractor. These taxpayers may not have income statements for their business income and expenses. The information to prepare their tax return is from their records.

Carefully review the intake and interview sheet and ask follow-up questions to determine if the taxpayer or spouse had business income. Taxpayers may not think of themselves as "self-employed" if they have a small home business or work part-time as an independent contractor.

Some taxpayers may indicate that they received cash income for self-employment activity. This income must be reported, unless excluded by law.

If taxpayers do not have adequate records of the cash income they received, you may be able to assist them with simple record reconstruction. See the section on reconstructing records later in this lesson.

Tip

Income received from all sources in a self-employed taxpayer's business must be reported, unless excluded by law.

Form 1099-MISC

Form 1099-MISC