Why Did I Just Get a 1099 MISC in the Mail?

Why Did I Just Get a 1099 MISC in the Mail?This post is brought to you by GoDaddy Online Bookkeeping (formerly Outright) the simplest way to manage your small business finances online. Sign up today for a less taxing tax time!

You probably thought you were done getting mysterious tax forms in the mail, yet this one shows up and ruins your day. You weren’t expecting any more forms at all and were even close to finishing up your taxes once and for all. What are you supposed to do with this thing?

The answer is you must have done some freelance work at some point in the last year, because the 1099-MISC is the form that independent contractors and freelancers receive in lieu of a W-2. Whether or not you remember performing a freelance job or not is irrelevant – it’s time to deal with it.

If this is the case or if you’re still learning about tax documents, we’re here to help! Let’s take a look at what the 1099-MISC is and how you can use it.

What it is

As stated above, the 1099-MISC is what independent business owners like freelancers get at tax time instead of a W-2. But why do you get a separate form? Why don’t your clients just send a W-2 and be done with it?

The answer is in how different parties handle taxes. When you have an employer, they handled most of your tax liabilities for you. They withhold the portion of your taxes the government agency needs and pay it in for you. This doesn’t happen with freelancing. You have the pleasure of paying the necessary taxes to state and federal taxing authorities yourself.

So when April rolls around, employers send a W-2 that has not only your income info but also how much tax they paid in for you. A 1099-MISC, though, only has how much money you made through that particular client. So if you charged someone $1000 to write blog posts for a year, they will send you a 1099-MISC that shows your total income through them as $1000.

What to do with it

You’re probably wondering why you need a tax form to tell you how much you made through clients. After all, you keep good small business bookkeeping records, so what’s the big deal?

Well, this information also goes to the IRS so they know how much income they should expect to see you declare on your income taxes. So don’t file it away just yet.

The first thing you should do with the form is to check your records. Are you sure that 1099-MISC is correct? If you got multiple forms, have you checked that they’re all correct? Verify independently that the form matches your records; otherwise, you’re going to have a big problem on your hands when the IRS comes knocking.

For example, say a client accidentally recorded that they paid you twice for a job. They’ll send you and the IRS a record that they paid you $2,000 this year, while you were actually only paid $1,000. The IRS will expect to see you declare that $2,000 on your income taxes, and will make noise if you don’t.

When you’re sure your 1099-MISC forms are correct, file them away for a few years. Even though the IRS ostensibly has a copy of your 1099-MISC forms, you never know when you might get a “dreaded letter” fro the IRS and need to make your case.

How many 1099-MISC forms did you receive this year? Were they all correct?

Last Minute Tax Organization Tips!

With only 11 days left until April 15th arrives, small business owners and entrepreneurs everywhere are scrambling to get their federal and state taxes filed and sent along to the IRS with California doing the most scrambling of all. CohnReznick recently reported in one of their company newsletters that for LLCs and Corporations in California that fail to file their tax returns on time, they may wind up paying a $2,000 penalty as issued by the California Franchise Tax Board.

Don’t endanger your overall tax position – take our CEO Deborah’s tips into consideration when it comes to getting your taxes prepped and sent on their way. Best of all, these tips can be applied to the years to come beyond the 2013 tax year and once they’re in place will make filing taxes in the future much easier and more organized.

1) Make sure you have your documents prepared.
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