Guide for Filing a 1099-MISC

At tax time all the different forms and schedules can be quite confusing, especially if you have to file a 1099-MISC. Whether you work at home, are self employed, or consider yourself a freelancer it is likely that you will have a few 1099s at tax time. A 1099 MISC is the self employed version of a W-2, and any company that pays you more than $600 between January 1st and December 31st of any fiscal year is required by law to send it out to you. There are many forms of the 1099, but the IRS mainly uses the 1099-MISC to track non employee compensation paid to individuals. If you find yourself staring blankly at your 1099-MISC, these tips may help you figure it out.

When working as a freelancer it is not uncommon to collect non employee payments, prizes, fees for services, and other monetary payments throughout the year. At the end of the year, each business that has paid more than $600 you must send you a 1099-MISC, by January 31st. If you have not received a 1099-MISC by the end of January you should request a copy from both the company that pays you as well as the IRS. Because 1099s are both sent to the freelancer and the IRS it is likely they will have a copy to provide you with. Of course, you will have to verify your identity in order to receive the proper forms.

So now you have a 1099-MISC and you are wondering what you are supposed to do with it, right? When I got my first 1099 there were no instructions and I had no idea what to do with it. My tax return was denied three times because I couldn’t figure it out, and this is actually quite common. Just looking at a 1099-MISC you would never guess it was hard to figure because it doesn’t say much and looks pretty simple. But once you get into the forms it can be a little difficult to determine if you are doing the right thing. If you are really confused and you can’t figure it out you do have options.

The worst thing that you can do is ignore your 1099-MISC. By law both you and the company that pays you are required to file a 1099-MISC. Your 1099 should be reported under schedule C or C-EZ and SE for Self Employment, along with your regular 1040. If you fail to file your 1099-MISC be prepared to pay fines. Depending on how late you file your 1099 the fines can range from $15-$50 for individuals and $25,000-$100,000 if you are a small business owner. You must also keep a copy of all 1099s you receive and file as proof of complying with tax laws.

If you prefer not to prepare your own taxes, or you can’t figure it out like I couldn’t you could always have a paid prepared, such as a CPA help you file your 1099-MISC. Some of the deductions and expenses can be pretty confusing if you are not familiar with personal finance so having a registered CPA will definitely save you time and headache. After you learn how it is done you can do it yourself the next time, if you want.

If your 1099-MISC is wrong you need to get an amended copy right away. You can do this by notifying the paying company that the 1099 they sent does not match your records. By law the company is required to investigate your claim and send you a new 1099-MISC if there were changes made. Just to make sure everyone is notified you should personally send a copy of your new 1099-MISC to the IRS. The computers the IRS uses are much more efficient than they were 10 years ago and are much quicker at picking up errors between records.

Sometimes a 1099 may seem like it is incorrect, when it is actually right. For example, if you were paid $2000 by a travel magazine for an article and photos and then reimbursed $3500 for travel and expenses it is likely your 1099-MISC will say that you were paid $5500. But you paid out of pocket for those things and got the money back later! How can that be? Generally reimbursements are added as compensation on a 1099-MISC because there is not another box. Go ahead and report the $5500 and then take all the deductions and expenses you are allowed from your total gross income and it should balance out.

If you didn’t receive a 1099-MISC and you know you should have, you should request a copy. Just because you didn’t receive a 1099-MISC doesn’t mean that you automatically have free cash. Nothing is free. By law you must report all income and this includes non employee compensation from individuals and companies. If you fail to report your 1099-MISC you can be charged with tax fraud. Tax fraud is a felony punishable by jail time and fines. When filing your federal and state taxes don’t forget to include your 1099. Good luck!

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