There are crippling mistakes with a 1099 that can cost big, says Rob Wood, tax attorney with Wood, LLP in San Francisco, California. While it seems straightforward, Wood says to keep track of them and not throw them away. As all of that information gets reported to the IRS, you've got to record them on your tax return.
For many taxpayers, if you get a 1099 that you received money and you don't put it on your tax return, it's virtually a guarantee that you'll get a bill from the IRS asking for it, Wood says. However, the converse isn't true, Wood points out. If you report on your tax return more income than you received by 1099's, there's no mismatch and the IRS is happy to take the additional money. Wood has seen people who've gotten a legal settlement, for example, expecting a 1099 only to have never received one. It may be that the 1099 was issued but got lost in the mail but that information was transmitted to the IRS. A second 1099 may be issued but now the IRS thinks double the income was earned. Wood's advice is to record the income even if you don't get the 1099, as you don't need the form attached to the tax return.
Every year, Wood sees people end up in audits and fights with the IRS over a tax bill that started as something small that went awry. "You don't want to appear on someone's radar if you can help it, especially the IRS," Wood says.
For more information on the article written in Forbes magazine about this, click here. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network. The Tax Law Channel and The Legal Broadcast Network are featured networks of the Sequence Media Group.