Forms 1099 are the most dreaded forms by any taxpayer.
Probably, the only individuals who love such forms are the Internal Revenue Service – IRS. The reason why the agency likes them is that it keeps tabs on ordinary taxpayers.
The agency will match all 1099s forms with the employer’s wage report forms against the tax forms and send a CP2000 notice if they don’t check, to owe you money.
To ensure you don’t get owed money, you need to know what entails in these forms.
1. Who Needs to Receive Form 1099?
Forms 1099 are used to calculate and report part of non-employment income.
The non-employment income includes payments received being an independent contractor or when you get dividends from a stock market. These forms are unavoidable to any independent contractor, especially in January and February every year.
All businesses are required to issue these forms to any payee for any sum that’s over $600.
Are you worried about getting the forms? You don’t need to since you can make deductions for independent contractors to minimize the costs and maximize the tax returns.
However, many exceptions govern these forms, including being exempt from corporations and getting it for any of your bank accounts even if you earn less income interest.
2. There Are Many Varieties of Form 1099
These forms have continued to increase, depending on the increase in departments. Currently, there are over 20 forms, and the list is growing from day to day.
The main ones include:
- forms of interest, forms for dividends
- state and local tax refunds and employment benefits
- pensions and payouts for IRAs
- broker fees records and barter transactions
- real estate transactions.
While there are many categories, forms 1099-miscellaneous income is the most detailed one and asks most questions. It also covers the most territory when it comes to non-employment income.
3. What Happens When You Don’t Receive Form 1099?
Even if you don’t receive form 1099, any taxpayer has to pay taxes, as required by law. When you don’t receive the documents, it’s advisable to follow up on the issue and know why you aren’t getting them as required.
When companies submit form 1099 to the IRS and don’t get it, the agency will send you a letter owing you the income taxes. You should always inquire about them if they don’t reach you.
Even if you don’t receive the letter, you should file the tax as miscellaneous income to be safe from penalties since the IRS letter will come even if it takes a year.
Even though these forms don’t get included in the tax returns, it’s good to keep them if there is an audit.
4. Always Update Your New Address
Report any change of address to the IRS and the local tax authority. It should match with your Social Security Number.
Do the reporting regardless of whether your payer has your correct address or not, to show that you are interested in showing your payers the current address.
It is essential to update your current address with all the payers and update the same info with the U.S. Post Office to get all forms submitted to the IRS.
Read also: 5 Small Business Taxes You Need to Know About
5. The Internal Revenue Service Gets Your 1099 Form Too
All of the 1099 forms you receive also go to the IRS agency, even though they take longer to reach them.
Most taxpayers send documents on January 31st, but some end up getting the taxpayer on the 15th. The IRS receives these forms at the end of February, although some companies send them simultaneously to the taxpayer and the IRS getting them at the same time.
Due to conveniences, most taxpayers mail these forms to the taxpayers, collect all IRS copies, and scrutinize and summarize them before sending them electronically to the IRS.
6. You Should Report All Errors Immediately
Do not wait until when you get caught up to report errors. Report any spotted errors immediately to the company issuing the form.
Once you receive your 1099 forms, open them directly, and go through them without wasting much time. Go through all the transactions and deductions, comparing the figure to what you received.
If there is any lapse, report it immediately to the company, and they will correct it on time before they submit the forms to the IRS.
If the records have already been submitted to the IRS, the company can fix it and send an updated one to cancel out the previously sent. These forms always have a tick box to show that one is a correction and not an original form.
7. You Need to Report all 1099 Forms
The IRS always scrutinizes every form they get in their computers and checks if they match the details. They consider the employer identification number, the social security number, and, sometimes, the taxpayer identification.
Any difference will make you pay money to the agency. If you reported an error to the company and failed to initiate the change, you can report directly to the tax agency to avoid penalties.
If you differ with the taxpayer on the payments made, you can directly contact the tax agency and report your pleas.
Do not ignore any errors in your forms since the agency will still follow up on you on such errors. Report them immediately even if the tax paper refuses to accept corrections.
8. Never Overlook a 1099 Form
Most people will get the form and keep it in their drawers without even looking into it. That will eventually cost them, especially if there are errors.
Everyone hates tax audits, but if it’s done on you and something is found amiss and required to pay, do it without further inquiries since there was enough time to correct the individual’s 1099 reports.
If you forgot any form of interest, the IRS would send you a computer-generated bill which you must pay to avoid further inconveniences. Always be careful and never overlook any report.
While dealing with your 1099 forms, it’s advisable not to forget following up with your income taxes too. The reason is that the income tax department receives the same details as the IRS department.
Failing to follow up with the 1099 form will make the state catch up with you on the income taxes. We do hope the list has been an eye-opener concerning the 1099 forms.