I think it is time for a little lesson on 1099’s for everyone. Forgive my rant, but every year people start begging for their 1099’s in early January. They say they “need their 1099 to file their taxes.” This is simply untrue and tells me that many of them are probably cheating on their taxes.
A 1099-MISC form is issued to a person or unincorporated entity that is paid more than $600 in the calendar year. If they pay you less than $600, the payor does not have to issue a 1099-MISC but that does not mean it is not income to the receiving party. The purpose of the 1099 is to notify the IRS that this person should be claiming the income and paying taxes on it. The IRS then matches this amount reported to the proper return and if it is not reported, the IRS sends out a lovely balance due notice. Are these individuals that “have” to have a 1099 in order to do their taxes excluding the income from the ten vendors that paid them $500 each that were not required to send a 1099?
Independent contractors are self-employed are businesses whether they know it or not. Just like any other business, they should keep a proper set of books and records to substantiate their income and expenses. They are also eligible to deduct qualifying expenses against the income before paying taxes on it.
With electronic filing being done for most returns today, no statements like W2s have to be submitted to the IRS with the returns. Even with paper filing, you only attach statements showing how much was withheld and remitted to the IRS. 1099s do not normally have withholding so they are not required and never have been required to be submitted to the IRS.
So when I hear someone asking for their 1099, I hear a business owner saying “I do not keep books and records. I do not keep up with my business as a business.” and “I plan to only claim the income that is sent to the IRS.” This is a recipe for pure trouble and is the reason the IRS scrutinizes self-employed filers so much. The truth is that this one the highest concentration of tax cheating that exists in our tax system today.
Do yourself a favor. If you are a business owner, require all potential 1099 vendors to complete the form W-9 from the IRS before they receive any payments from you. If they are planning to cheat on their taxes, remember that they may not always be the best vendor for you. Have a backup!
Donna Bordeaux, CPA with Calculated Moves
Creativity and CPAs don’t generally go together. Most people think of CPAs as nerdy accountants who can’t talk with people. Well, it’s time to break that stereotype. Lively, friendly, and knowledgeable can be a part of your relationship with your CPA as demonstrated by Donna and Chad Bordeaux. They have over 50 years of combined experience as entrepreneurial CPAs. They’ve owned businesses and helped business owners exceed their wildest dreams. They have been able to help businesses earn many times more profit than the average business in the same industry and are passionate about helping industries that help families build great memories.