Filing taxes is a tedious endeavor for most people but even more so for self-employed freelancers who have tons of 1099-MISC forms piling up everywhere. You may hate the 1099’s but the Internal Revenue Service (IRS) absolutely love them.
It is a very common IRS tax form used to claim miscellaneous types of income (earnings outside the scope of wages, salaries, and tips). The reason that 1099s pile up so fast is because there are a variety of 1099 forms and so many ways of earning non-employment income.
Filing your taxes without 1099
As a self-employed individual, you must track receipts for tax deductions and keep clean records of your income for the IRS if you don't want to pay 1099 taxes. With good record-keeping, you will be able to file taxes on your self-employment income even if you don't receive 1099. Here’s how to go about it.
Report your income
Filing your taxes without 1099 is okay as long as you pay the right amount of tax and report your income. This is because, even though you might not receive the form 1099, the IRS probably will and if you do not declare it along with your income tax, you will incur some penalties.
The 1099 has all your tax information on it such as your Social Security Number or the Taxpayer Identification number which means that the IRS will know that you received money and it will also know if you do not declare it on your tax return.
Independent contractors are required to report their income on Schedule C of Form 1040, the Profit or Loss from Business. For self-employment taxes on net earnings exceeding $400, you must submit Schedule SE, Form 1040, which lists your income subject to self-employment tax. You should also make quarterly estimated tax payments on Form 1040-ES, which is the Estimated Tax for Individuals.
By accurately reporting your income, you can ensure that the 1099 forms that the IRS receives from your clients match up with your reported income.
Try to get another copy of your Form 1099
If you haven’t received your 1099 in your mail or have misplaced it, chances are the issuer has a copy of it. You can simply reach out to them and request a copy of it. You must ensure that you request a copy of the same 1099 form you lost or misplaced. This is because if you are issued a new 1099, the IRS will perceive that as another income you have earned and it will require you to declare it.
Track down your data
Since 1099 is just an informational form that tells you how much you need to report on your taxes, all you need is the information on the form and not the form itself. You can easily get this information by contacting the issuer of 1099, be it a client, an investment company, or a bank.
It is now very easy for you to check this information online without the need of calling the issuer. This is because most companies now allow you to check your tax and account information online.
You can also request institutions such as banks and investment companies, send you copies of your financial statements. From there you can get the 1099 information required for you to file your returns.
Fill out a form 4852
Form 4852 serves as a substitute for form W-2. wage and tax statement. You only file your taxes by filling out this form in the event that you have been unable to get a copy of your 1099.
By filling this form, you request information about your wages, and taxes that are being withheld, and even if you do not have your pay stub, you may be able to estimate your earnings to fill the form.
Penalties for not reporting 1099 income
As discussed earlier, the IRS also receives your 1099 form. The form typically comes in triplicate. One copy for the issuer, another for the taxpayer, and the last one is for the IRS.
So, if you receive a Form 1099-MISC that reports your miscellaneous income, you can be sure that the IRS also has that information. The same applies if you receive a Form 1099-NEC. You should still report cash income without a 1099 by law.
You will incur the wrath of the IRS in the form of penalties if you do not include your miscellaneous income and any other taxable income on your tax return.
You also run the risk of understating your tax liability if you do not report your income. This forces the IRS to impose an accuracy-related penalty. This is equal to 20% of your underpayment. In severe cases, penalties for not filing a 1099 could include criminal charges for tax evasion which comes with serious jail time.
The different types of form 1099
Taxpayers receive different types of form 1099 depending on the type of income that was earned during the tax year. The most common ones are:
Just like other tax forms, including W-2s, 1099-MISC forms need to be sent out by the end of January. A 1099–MISC is typically issued for income that falls outside the other 1099 forms.
For a self-employed freelancer, a client will typically send you a 1099-MISC if they paid you more than $600 for services you provided. There are some types of non-employment income that are also reported on a 1099–MISC. For example, money received from awards or awards is also reported on this form.
The IRS uses the 1099-INT to report income from interest earned from investments. This form is sent out to taxpayers by investment firms or banks and brokerage firms if the taxpayer earned more than 10% worth of interest in the tax year.
The 1099- NEC dictates the reporting requirements for non-employee compensation. If a business hired a non-employee, who performed freelance work for them, such as an independent contractor, then the business must file a 1099-NEC.
Self-employed individuals may also receive a 1099-NEC if they performed a service and got a fee of more than $600. The non-employee income also includes fees, royalties, benefits, and commissions. An employer does not have to send you a 1099 under $600.
This is an IRS form that investors receive from banks and other financial institutions. It is sent to them if they receive dividends and distributions from any type of investment during a calendar year. The 1099-DIV informs the IRS that you were paid potentially taxable dividend income.
A 1099-DIV is usually sent to a taxpayer if dividend income was earned throughout the tax year. The dividends may be in the form of cash payments paid to investors by corporations as a reward for owning their equity shares and stock.
A 1099-R is issued to a taxpayer if he/she has received a payout or a distribution from an individual retirement account (IRA), pension, or a retirement plan. There are some certain life insurance contracts and annuities that may issue a 1099-R as well.
If you are confused and unsure of whether to pay taxes on a retirement distribution, you should contact a professional CPA. This is because not all retirement distributions are taxable
Do you need 1099 to file your tax return?
Ideally, it would be better to have all your forms in hand when 1099s are due and you are filing your taxes. But, you can still file your taxes without them, it just won’t be as smooth. The IRS does not require you to attach your 1099 forms to your tax returns, unlike with W-2s.
If you have tracked your income correctly, you will not need the forms to file your taxes. You should note that a 1099 form is not a tax document to be filled out but an informational form.
Like all things, there’s always one exception to the rule. In this case, it is Form 1099-R. This form tracks distributions from insurance contracts and retirement plans. If this applies to you, you will need to attach this form to your tax returns.
Here’s to filing your taxes
Form 1099 is used by the IRS to police taxpayers. It is their subtle way of informing taxpayers that they are being watched, and that they cannot lie to the IRS. To be on the safe side, always have your tax information organized. Remember, even if you don't receive a 1099, you still need to report your income.
And, although small business owners always face unique challenges when it comes to bookkeeping, they should opt for electronic filing of their taxes. It is safe and easy, and the IRS allows you to file your taxes until April.
As a small business owner, understanding the various IRS-required forms for subcontractors is absolutely essential to remain compliant. This guide will let you know all about creating 1099 forms and what types of forms you may need..