April is the nightmare month for taxpayers; the time when you must file your tax returns or incur the wrath of the Internal Revenue Service. If you lose important documents, such as the form 1099, April can become even more agonizing to get by.
That’s why the last two months leading up to tax day should be spent collecting all the necessary forms for filing your taxes. These include your form W-2, write-off receipts for taxes, and 1099 for miscellaneous income.
If you misplace or lose your form 1099, you’ll most likely fail to file your tax return in time, and you might get slapped with a few penalties.
The IRS refers to 1099 as information returns. 1099 is a series of forms that includes the 1099-B, 1099-S, form 1099-MISC, 1099-NEC, and various other forms. The form 1099 reports what you paid to a non-employee for business services they provided. These 1099 forms are also used when an employee receives money outside of their wages from their employer. The IRS requires companies to mail out forms by January 31 to independent contractors. So most forms should arrive by late January or early February. It tells you how much Social Security earnings to report to the IRS on your tax return.
Three people will get a copy of a 1099:
The 1099 is for:
The 1099-MISC exists to put people in check by forcing them to report their earnings. It is usually filed with the federal and state governments and the money you pay someone for services rendered is on record. So, if they do not report the earnings, they can be charged with tax evasion as the IRS has proof of it.
If you don't receive your 1099 by mid-February, call your employer or payer for the missing form.
Unfortunately for everyone, the government is not very forgiving of human error and missing any earnings you receive. The IRS will catch a missing 1099 form. A return filed missing a 1099 may not be outright rejected, however, it may not be considered properly filed until you provide all the required documents.
There are no direct penalties for losing 1099s, but there are for failing to handling your taxes in time because you were looking for a lost 1099. If you lose your 1099 form, the best thing for you would be filing for an extension to avoid penalties for late 1099s. Missing information or an incomplete tax return may also incur penalties. For example, sending in a form without your Social Security number can cost you $5 each time it's missing.
The IRS charges varying penalties for incomplete filing depending on the size of your business, but they can be significant. The penalty fees can quickly escalate to up to 25% of the total unpaid taxes for failure to file and pay penalties for taxes owed. There are substantial penalties for not filing 1099 tax returns.
In severe cases, you may be looking at criminal prosecution for tax evasion for failing to report all taxable earnings on your federal tax returns.
Listen, if you don't include all the reported income on your tax return, it will send red flags to the IRS. So, it is important to report it as accurately as possible.
The first thing you should do if you lose your 1099 tax form? Try not to panic. There are many ways to replace almost any document you may need to file (and you can even submit your taxes without it). Unlike W-2s, which you need to file with your income tax, you can submit your 1099s separately. And if you include all your taxable income on your returns, then you are good.
If you lose your form 1099, you can:
This is easy to do because the issuers of the form are required to keep a copy of it. So all you have to do is contact the issuer and ask for a copy of the missing form. When you contact them, you must insist that they send you a copy of the one you lost and not issue you a new one.
The 1099s are linked to your Employer Identification Number or Social Security number. So if you are issued a new 1099, the IRS might think that you received twice the income. You can also instantly get a copy of your Social Security 1099 form online. Just create a free Social Security account and download the form online.
Yes, you can still file your taxes without 1099 tax forms. This is very convenient for self-employed taxpayers. They can do this by:
If you did not receive a 1099 or you lost it, then reviewing your bank account is a great way to verify that you’ve included all income on your tax return. The income will include payments for which you didn’t receive a Form 1099.
Financial institutions that provide summaries of activities can be very helpful in this regard. Keep a clean record of all cash payments you receive as well.
You need to keep track of all your income and expenses so that you can accurately calculate your income tax liability when you report your income.
When you lose a specific 1099, you can easily get the information by reviewing the invoices you sent to the customer and you can easily get the income you earned. The same applies if you issued receipts to a payer. You just have to add them up.
When all else fails, you can always order an IRS transcript. The IRS is very diligent with their records and you can view 10 years' worth of information from their numerous transcripts.
To order the transcript, simply visit IRS.gov online and submit your request through the Get Transcript tool. You must make sure to order the Wage and Income Transcript that includes all the data it receives about various IRS forms that are used for informational wage reporting, such as Form 1099s and Forms W-2. The transcripts will include all your tax return information.
If you are constantly losing important documents, you should consider off-site storage for your most important documents. Technology is your friend in this. It allows you to scan, create and keep an electronic copy of your 1099.
You can also scan and digitize paper receipts from the prior year, and back them up using cloud-based storage and remote servers.
Storing your tax documents on the cloud is not advised because they always contain sensitive information such as your Social Security number and your personal tax information.
Remember, if you lost or didn't get a 1099, you can always get a copy of your forms online. Creating a Social Security account takes less than 10 minutes and you can download it for free. The good news is that you can still submit your tax return without the 1099s. But you need to retain your business tax documents even after filing your return to support all your income and deductible business expenses for the tax year. Good record keeping is key here. You can decide to go digital and do away with all the paper documents which are prone to misplacement.
A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.
Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.
Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.
The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.
Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.
For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:
Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.
Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.
If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.
That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.
There are some types of contracts which must be in writing.
The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:
Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.
Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.
Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?
Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!
If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.
Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.
Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.
So, ultimately, the question is: written or verbal agreements?
Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.
Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.
Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.
There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.
A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.
Bonsai's product suite for freelancers allows users to make contracts from scratch, or using professional templates, and sign them using an online signature maker.
With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.
Why not secure your business today and sign up for a free trial?