Receiving a 1099 is not a joyous occasion and if you were not expecting one, then you may not be tickled to see it in the mail. A 1099 means that you owe taxes on income you have received. For instance, you may receive a 1099 if you earned interest on the money in your savings account.
Before you roll your eyes and stomp into your home, there are some things you need to know about 1099s.
In fact, there are a variety of 1099 types and the type you get will correspond with the income you received. For instance, if you receive a 1099-MISC, this is often for additional income you earned working for a company. A 1099-INT is for interest earned, a 1099-G is for unemployment benefits or similar, and a 1099-DIV is for dividends paid. There are a couple of other 1099 forms as well so when you receive one, pay attention to the letters following.
Even though there are different 1099s, you must claim them all on your federal tax return.
It depends. Typically, a company will send you a 1099 when you have earned $600 or more with the company. However, there are some exceptions to this rule and that is why you will receive a 1099 for only a couple bucks of interest earned on a bank account.
If you change your address and forget to notify the issuing authority of the 1099, you may not receive the tax documents, but the IRS will. This type of scenario will cause problems for you because the IRS has a 1099 for you, but you do not have it so you are unable to add it to your tax return.
You will often receive a letter in the mail detailing the discrepancy in your tax return and you will be told the amount you owe to the IRS.
In addition, make sure that when you move, you update all employers of your new address and you put in a formal request for the post office to change your address. That way, all mail is forwarded to your new address and you no longer have to worry about missed tax documents.
If you receive a 1099 from a company and you notice that the amount is incorrect, you need to have this fixed right away. You should always contact the payer first to see if they have mailed in the 1099s. Sometimes, the IRS version of the 1099 will be mailed after your version so you may be able to catch the payer before they send it off.
If the payer has already sent the 1099s off to the IRS, you will need to have them file a correction to your 1099. There is a small box on the 1099 that is used when a correction is made. This box alerts the IRS and tells them that the income amount needs to be adjusted and not included.
If you know you are supposed to receive a 1099 for income you made, but you do not receive it, you may open a can of worms calling the payer and asking for them to create one. You should report the income accurately on your tax return with or without the 1099.
If you do call the payer and ask them to create a 1099, it may be done incorrectly, or if one was generated and never made it to you, you may find that you have the income reported twice.
Being honest is the best policy when it comes to your taxes and even if you do not receive an official “tax document” for income you know you made, claim it anyway. You will find that sometimes even though you do not receive a tax form, the IRS still knows about the money you received.
Failure to report income and pay your taxes can result in penalties from the IRS and you may even face wage garnishments if you do not pay. Even though you may not receive a traditional audit from the IRS, you may receive a computer-generated letter letting you know that you owe additional money to the IRS. If you do, pay the amount if it is accurate and be glad that you are not going through a full blown audit.
Asharp Bookkeeper