Dear Atlanta Tax Expert,

I became an independent contractor of a financial company in May, 2004 while I was still on my F-1. But I did not make any income with them until late 2004, when I already changed my status to OPT. Then in February 2005, I found a full-time job and stopped working at the financial company. However, I didn't not officially terminate the relationship with them until July, 2005. So I was not able to generate any income during that time, but I paid a lot of expenses for maintaining my security licenses. Then I changed my status from OPT to H1-B in October 2005. Besides those, I also sold advertisement for a newspaper while I was going to school. It was not a significant amount of income at all in 2004, so I didn't file it. But this year they have sent to me a 1099-misc for nearly $1000 for 2005. The fact is, I have also stopped working for this company, but I still receive residual income from them.

Originally I wanted to file 1040NR with ScheduleC-EZ for the newspaper income since it's over $400, and Schedule C for my losses from the financial firm. But after reading a few messages on this forum, I started to have some concerns.

1. One person has mentioned that people on H1-B visa should not receive 1099-misc forms, which is something that I did not know before. So how am I going to resolve this now? I received 1099-misc from the newspaper company for both year 2004 and 2005 while I was under F1-OPT-H1B. I did not report this on my 2004 return because the amount is very small, but how am I going to handle it this year?

2. Similar situation to the financial firm. However, because of the low amount of income I made in year 2004, I was not issued a 1099-misc. Instead, it was letter stating the amount of income I received from that company. And this year, because I did not make any money with them at all, I did not receive any documentation from the company. But like I have mentioned, I really wanted to file because I want to be able to reduce my taxable income by reporting my loss. Am I allowed to do that without a 1099-misc? And most importantly, am I going to violate the immigration law if I do report this source of income?

So now I have the following

W-2 from my full-time job
1099-misc from the newspaper publisher

What should I do? What are my choices? And if I'm already in trouble because of getting income from companies other than the one that sponsors me, what can I do to fix it? Can I file without mentioning the other two companies at all? Or is that going to upset IRS?

Also, my company also withheld for my SS and Medicare. Can I only get the refund for the amount that applies to the period I was under OPT in 2005, which is 8 month? Or do I get the whole year's?

Thank you very much for reading my very long questions and helping me to straighten this out in advance. I am so confused right now. I hope to hear back from you soon.

Connie

Connie:

Even if the Form 1099-MISC amounts for 2004 were both under $600, you should report the income on a Schedule C because the IRS is expecting you to account for that income. Same rule applies for 2005.

Now, should you be getting this income? No, but I would not worry about it. You will get into more troble for not reporting the income than you would for earning the income in the first place.

My advice is to amend your 2004 return and report the income using Schedule C. Report the income for 2005 using a Schedule C. Then get on with your life. I doubt it will have any adverse effect on your visa status. No one to date has stated that it has caused a dramatic problem with their visa.