Monday, January 27, 2014

7 Crippling Mistakes With Form 1099 That Cost Big.

FROM FORBES.COM-

It’s Form 1099 season, and companies big and small are churning them out. If
you’re in business–even as a sole proprietor–you need to pay attention to
issuing them or face penalties. The burden on businesses seems to grow each
year. Even cost basis is now required on some Forms 1099.
But the real prize is receiving them. Since the IRS gets a copy of every single
one, they are key pieces of information that can cost you big. You may not like
the little forms, but here are 7 key traps.

1. Don’t Forget to Watch Your Mail. People always seem careful with
Forms W-2 since they are traditionally attached to tax returns showing wages
as well as taxes withheld. But I’m often surprised by how careless people are
about Forms 1099. Watch for each Form 1099! They are matched to your
Social Security Number, and you’re almost guaranteed an audit if you fail to
report one.

2. Don’t Forget Changes of Address. Even if the issuer of the form has
your old address, the information will be reported to the IRS (and your
state tax authority) based on your Social Security number. Make sure payers
have your correct address so you get a copy. Update your address directly with
payers, as well as putting a forwarding order in with the U.S. Post Office. You’ll
want to see any forms the IRS sees.
It’s a good idea to file a change of address Form 8822. The IRS explains how
and why at Topic 157 – Change of Address–How to Notify IRS.

3. Beware Errors. The normal deadline is January 31 for mailing 1099s to
taxpayers. Then, the payer has until the end of February to send copies to the
IRS. Some payers send forms to taxpayers and the IRS simultaneously, but
most use the 30 day delay. That delay means you may have the chance to
correct errors. Don’t just put arriving Forms 1099 in a pile; open them
immediately.
Suppose you get a 1099-MISC on January 31 reporting $8,000 of consulting
pay, when you know you received only $800? Inform the payer immediately
in writing and by phone. There may be time for the payer to correct it before
sending it to the IRS. That’s better for you. If the payer has already sent an
incorrect form to the IRS, ask them to send a corrected form. There’s a box to
show it is correcting a prior 1099 so the IRS doesn’t add the amounts together.

4. Don’t Lose Them. Open the envelope and check the form. And keep the
forms in a safe place. You’ll need them if you do your own return. If you have
a paid preparer, you should give copies of each form to your return preparer.

5. Beware Timing. Don’t be too anxious to file your return if you haven’t
received all your Forms 1099. Some 1099s may come as late as March or April,
despite the normal deadline that they are supposed to be mailed to you no
later than January 31.

6. Missing One? Don’t Ask! Keeping payers advised of your current
address is a good idea, but if you don’t receive a Form 1099 you expect, I
wouldn’t request it. If you are expecting a Form 1099, you know about the
income and the amount. Just report it on your tax return. Reporting more
income doesn’t trigger a mismatch on IRS computers.
In contrast, if you fail to report something on your return that is reported on
a Form 1099, that is a mismatch. But why not request a Form 1099 you
expect?
If you call or write and ask for a Form 1099, the payer may issue the Form
1099 incorrectly. Or, you could end up with two, one issued originally (even if
it never got to you) and one issued because you inquired. The IRS computer
may think you had twice the income you did.

7. Report Them, Don’t Attach Them. I see clients fighting tax bills every
year that probably could have avoided problems entirely by more careful
reporting. You can’t ignore 1099s. Sure, you may disagree that something is
income (say, an injury lawsuit recovery). You may say money is capital gain
not ordinary income. It might even be recovery of basis and not income at all.
But you have to explain. Don’t ignore the form. And don’t attach it. Even in
paper filing days, copies of Form 1099 didn’t go on tax returns. Just keep them
with a copy of your tax return. You may need them in an audit.

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