AccountingSmall Business Tax Tips - I Received Form 1099-misc - Now What?
Did you receive a Form 1099-MISC and aren't sure what it means and/or what to do with it? This article will answer that question. Form 1099-MISC is one of the most common tax forms in the world of the self-employed. And it's most common use is to report income made by sole proprietors who have performed services for other businesses. By "sole proprietor" I'm referring to self-employed people such as independent contractors, consultants or free-lancers who are in business for themselves but do not run their business as a corporation, partnership or multi-owner limited liability company.
If you fit that description of a self-employed person and performed services for another business, and that business paid you at least $600 during the year, the other business is required to send you a Form 1099-MISC by January 31 of the following year. The January 31, 2009 due date happens to fall on a Saturday, so the deadline for issuing 2008 1099's is automatically extended to the next business day of Monday, February 2, 2009. So you may have already received a Form 1099-MISC for 2008. If not, you could still get one soon.
If and when you get the 1099, take a look at Box 7, "Nonemployee compensation." This is the place on the form that your annual income from this other business will be reported. And this is the income that you must be sure to include on your Schedule C, because not only did you receive that 1099, but so did the IRS. In effect, then, the 1099-MISC serves the same function for the self-employed as a W-2 does for the employee - it tells you and the IRS how much income you made from one particular source.
Now that you know the basic purpose of the 1099-MISC, you probably have some questions, such as:
1. What do I do if I don't receive a 1099 from a business, when I know I performed services and received over $600 for the year? Whether or not you received a 1099, you are required to report all income.
2. What do I do if I don't receive a 1099 because I made less than $600? Sorry to sound like a broken record, but you are required to report any income you made, whether or not you received a 1099. Even if you made less than $600, just because you didn't get a 1099 does not excuse you from reporting the income.
Not getting a 1099 does not mean you don't have to report the income. If you made it, you're supposed to report it on your Schedule C. That's the law. And if you don't report all your income, you are part of the underground economy. (Shame on you!)
3. What do I do if the amount of income reported on the 1099 is incorrect? You should contact the business who issued the 1099 to resolved the discrepancy. If they made a mistake, they must issue a corrected 1099 to both you and the IRS. To be safe, you should wait until you receive the corrected 1099 before filing your tax return. You want to be sure that the 1099 amount agrees with your Schedule C income amount. If there is a difference between the total income on all your 1099's and the amount of income on your Schedule C, the IRS will eventually catch it and send you a letter demanding an explanation. Not good.
4. What do I do if I receive a 1099 after I filed my return? If you included the 1099 income on your return, do nothing, because you did report the income and there should be no problem. But if you didn't report the 1099 income on your return, you must amend your return to include the previously unreported income. This will result in additional tax you must pay, plus the possibility of late payment penalties and interest, depending on how much additional tax you owe and whether you pay it late.