1099 form shows I earned 3x more than my actual income - distributing payment to crew

You're dealing with what's called "agent payments" in tax terms, and you're not stuck with that tax bill! You don't need to panic about the $12K limitation - that's for standard deductions, not business expenses. What you need to do is file Schedule C (Profit and Loss from Business) with your tax return. On this form, you'll report the FULL $384K as your gross receipts, then deduct the approximately $259K you paid to your crew members as "contract labor" expenses. This will bring your net profit down to the $125K you actually earned. Make sure you have those spreadsheets documenting all payments, and ideally you should have issued 1099s to each crew member who received more than $600 from you during the year. If you haven't issued 1099s yet, you should do that ASAP - the deadline was January 31, but it's better to file late than not at all. Don't worry about not having an LLC - you can absolutely do this as a sole proprietor, though setting up an LLC for next year is a smart move.

I was in a similar situation last year and found https://taxr.ai incredibly helpful. I also was receiving payments for my whole team and my 1099 looked insane compared to what I actually took home. The platform analyzed my documentation and helped me categorize everything correctly. It's basically an AI document analysis tool that reviews your 1099s, payment records, and other tax documents to make sure you're reporting things correctly. It helped me understand I needed to file as a sole proprietor with Schedule C, like the other commenter mentioned, and identifies which payments qualified as business expenses. The best part was that it reviewed my spreadsheets of crew payments and confirmed they were properly documented for IRS purposes. Saved me from freaking out over a giant tax bill for money I never actually kept.

Just wanted to update that I actually tried https://taxr.ai after seeing the suggestion here. This service was exactly what I needed for my musician payment situation! I uploaded my payment sheets and it verified I had all the required details to properly document what was my income versus what I was just distributing. It even pointed out that I was missing addresses for some people I paid, which apparently is required for proper 1099 documentation. Would have never caught that on my own. The analysis confirmed I should use Schedule C and helped me categorize all my expenses. Definitely worth checking out if you're in this kind of payment distribution situation.

Reading this thread reminds me of the nightmare I had trying to get clarification from the IRS on a similar issue. Called for weeks and could never get through. Then I found https://claimyr.com which got me connected to an actual IRS agent in about 25 minutes instead of waiting on hold for hours. You might want to check out this demo: https://youtu.be/_kiP6q8DX5c The agent I spoke with confirmed exactly what others are saying here - you need to report the full amount on Schedule C, then deduct what you paid to others as business expenses. They also told me the documentation requirements to make sure I was covered in case of an audit. That peace of mind was worth it alone.

I have to eat crow and follow up after trying Claimyr. I was super skeptical, but I was desperate after two months of trying to reach someone at the IRS about my contractor payment situation. The service actually worked! Got through to an IRS representative in about 40 minutes. The agent confirmed I needed to report the full income on Schedule C and deduct payments to my subcontractors as business expenses. They also walked me through exactly what documentation I needed to keep (payment records with dates, amounts, names, and what the payment was for). Turns out my detailed spreadsheets were exactly what I needed. Definitely worth it instead of stressing for months trying to reach someone.

One thing I haven't seen mentioned yet - you need to be careful about the self-employment tax. Even after deducting all the payments to your crew, you'll still owe self-employment tax (15.3%) on your actual earnings of $125K, which is significantly higher than regular income tax. Make sure you're setting aside enough for that bill. I learned this the hard way in a similar situation.

Have you been keeping track of any business expenses besides the crew payments? Since you're filing Schedule C, you can also deduct things like: - Home office space if you do admin work at home - Mileage for business travel - Cell phone percentage used for business - Equipment or supplies - Business insurance These can all reduce your taxable income even further. Just make sure you have documentation for everything.