Hello. I have an income tax / business situation I could use some assistance to better understand.

I am a regularly employed, W2 employee working for a large company in Virginia. My wife is self employed working in Virginia as well. We live in a city other than where we work. I file our taxes (MFJ) and am comfortable working with Schedules C and SE.

A friend of mine has his own company (with a partner) and has a small mix of full and part time employees. Every year, his company has a couple of service contracts with a handful of professional organizations during the organization's yearly conference. Occasionally, as was the case this past fall, two conferences are held during the same week, and my friend and his employed staff aren't numerous enough to provide service at both conferences.

Since I have some computer skills, the sort of skills he needs to meet his contractual requirements, he asked me (and several other of his like skilled friends) if I wouldn't mind helping him out for one of the conferences (held in Atlanta, GA). He offered to pay me, so I said sure! I took a couple of days off from work (regular company leave time), flew down to Atlanta (he paid for the tickets), and spent 3 or 4 days filling in wherever I was needed. My friend paid all expenses - meals, hotel, airline, even beer!

A week or so after I returned home, I got a check in the mail. This past January, I received a 1099-MISC with the check amount in box 3 (Other Income).

So now I'm trying to figure out my income taxes. I'm fairly certain that I'll need to file my own Schedule C and SE (in addition to my wife's) for the IRS. I'll also need to file a Nonresident GA income tax form to pay GA income taxes on the amount I earned in Atlanta. I will then take a credit for the tax paid to GA on my VA Income tax form. That strikes me as fairly straight forward.

Here's where I think I have a problem. The idea of completing a Schedule C to pay income taxes and determine SE is fine, but I don't think of this as some sort of new business opportunity for myself. But, I'm pretty sure when I file a Schedule C with the IRS, VA and GA are going to want to know why I didn't have a business license (VA because of the address that will go on the Schedule C and GA because I paid them income tax on business income with no record of a business license). I don't know about GA, but in VA it's the LAW that you must have a business license, where required - and its required both in Atlanta and where I live - before you start earning business income.

So I'm a little concerned. Any thoughts or opinions on this. Should I be concerned?

I agree with your assessment of what you need to do for income tax purposes. Whether you should have had a license in Virginia or elsewhere to do business does not affect how you should report the income.

Having said that --- if this was a "one-time" arrangement, you may be able to argue that you were not really engaged in a trade or business. This would mean that you would not fill out a schedule C, but instead would report the income on line 21 of Form 1040 and take any deductions on Schedule A as an itemized deduction (subject to the 2% limit). From what you have described, however, Schedule C sounds like the best place to reflect the income and expenses.

IntlTax,

Thank you for your response. I don't know whether this is a "one time" thing or not. I expect that it probably isn't, but I really have no idea if it will happen again this year or even ever. If he asks, I'd probably say yes. But not if, in order to file my taxes correctly each year, I should be getting my own business licenses. Not for just a couple days of extra work. The paper work would make it not worth it.

I guess I'm wishing there was a form other than Schedule C to report this income on, so that I can pay SE tax, but not ever bother with whether business licenses are required.