A 1099 form provides an end-of-the-year record of income paid to an independent contractor by the companies or individuals who used their services. Sole proprietors, self-employed business owners and sole LLC owners also file 1099 forms to report the income they earn throughout the year. Despite their widespread use, some taxpayers make common errors when filing their 1099 forms.
Failing to report all income
A common business law problem involves underreporting the income you earned during the year. Some tax filers may need to file a W-2 form in addition to the 1099 form if they worked as an employer for a company. Additionally, you may need to file multiple types of 1099 forms in order to accurately report all of your income generated throughout the year.
Some of the examples of 1099 forms and their use include:
1099-B: capital gains
1099-MISC: royalties and rent
1099-R: tax-advantaged retirement account withdrawals
SSA-1099: Social Security benefits
1099-DIV: dividend reports
Reporting the Taxpayer ID Number (TIN) incorrectly
The IRS uses a TIN to identify you in their records. For some tax filers, their social security number may serve as their TIN. Some business owners use an Employer Identification Number (EIN) instead. Regardless, you should avoid reporting the wrong TIN when you file your 1099. Failure to use the correct TIN may result in fines of up to $280.
Claiming deductions without support
Particularly large deductions may trigger an audit by the IRS. In general, claiming multiple or large deductions without having accurate documentation of your claims could result in legal trouble with the IRS.
Long-term complications of 1099 mistakes
Few people enjoy filing their taxes, and the laws may seem complex. But remaining vigilant about potential 1099 mistakes can protect you from fines, audits and IRS lawsuits.
