Thanks for confirming what I suspected. Do you think I should just file the taxes normally and have him reimburse me for the extra amount I'll owe? Or is there a better way to handle this without getting him in trouble?

You should definitely report the income properly on your return since it's tied to your SSN. Have your uncle calculate exactly how much extra tax you're paying because of his income and reimburse you that amount - including the self-employment tax portion which is significant. If you want to do everything by the book, the proper way would be for him to pay you the full amount shown on the 1099, then you pay the taxes, and he would have no tax obligation. But most families just calculate the tax impact and have the actual earner reimburse that amount. Just make sure you keep documentation of everything in case of an audit.

This is terrible advice that could lead to penalties, interest, and potentially an audit. The IRS automatic matching system WILL flag the missing 1099 income and generate a CP2000 notice. By that point, penalties and interest will already be accruing.

It's not necessarily unfair - it's just different ways of taking money out of the business. Partner A might prefer regular guaranteed payments (like a salary) while Partner B might prefer taking distributions only. The total compensation can still be equal at the end of the year, just structured differently. Each approach has different tax implications though. Guaranteed payments always face self-employment tax (15.3%), while certain distributions might avoid that depending on the partnership structure. So sometimes the "salary" partner ends up paying more in taxes for the same amount of money.

Actually you're confusing marginal and effective tax rates. Their federal EFFECTIVE rate shouldn't be 37% on the whole amount even if part of their income falls into the 37% bracket. That's the whole point of progressive taxation - only dollars above each threshold get taxed at the higher rate.

I'm not confusing anything. If you read my post carefully, I was correcting OP's statement about the top marginal rate only going up to 35%. The top rate is actually 37% for income over $609,350 in 2025. I then mentioned all the OTHER taxes they're paying, which when combined with federal income tax, can push their total effective tax rate to 45% or higher. I never claimed their federal effective rate alone should be 37% on their whole income. The combination of all these taxes explains why OP feels they're paying so much.

I actually hadn't considered bonus depreciation! That's a great point. I vaguely remember TurboTax asking something about "Section 179" and I think I might have said yes without fully understanding what it meant. Would that explain such a big difference?

Yes, that would absolutely explain the difference! Section 179 expensing and bonus depreciation can make a huge difference in the first year. Instead of depreciating certain components over their normal useful life (5-7 years for appliances, 15 years for land improvements, etc.), you can deduct the full cost in year one. If you applied Section 179 to eligible components of your rental properties in TurboTax, you might have fully deducted thousands of dollars worth of appliances, carpet, window treatments, etc., which would make your first-year depreciation much higher. FreeTaxUSA is probably calculating just the regular residential real estate depreciation (building value ÷ 27.5 years) without any bonus components.

This is what I was thinking too. If the total cost basis for all three properties was $758,175, but you're only entering one property into FreeTaxUSA, that would definitely cause a mismatch.

That's really interesting - I didn't realize I could challenge my classification. The owner did control my schedule completely and I used his truck, not my own vehicle. Does filing the SS-8 cause problems with filing my current return, or can I still go ahead and file using the income as self-employment while the SS-8 is being processed?

You can absolutely file your current return while the SS-8 is being processed. In fact, you can file Form 8919 "Uncollected Social Security and Medicare Tax on Wages" along with your return if you believe you were misclassified. Use code G in column C which indicates you filed Form SS-8 but haven't received a determination. This approach allows you to only pay the employee portion of Social Security and Medicare taxes (7.65%) instead of the full self-employment tax rate (15.3%). If the IRS later determines you were correctly classified as an independent contractor, you may need to pay the difference, but if they determine you were misclassified, you've already filed correctly.

Having a contract is definitely helpful, but even text messages or emails discussing pay rates and work arrangements can serve as evidence of the working relationship. The IRS understands that not all independent contractor relationships have formal paperwork.