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.
Why is form 1099 important?
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.
When you pay more than $600 for business services -- You need to file a form 1099 if you intend to write the business services off your taxes
Individuals, freelancers, and contractors -- 1099s can only be sent to individuals, partnerships, or LLCs. You do not send them to non-profits, C- corps, or S-corps.
Anyone you do not pay through PayPal or credit card -- For freelancers or contractors who you pay through credit cards, you do not need to mail a 1099 for them. That’s because their credit card processors will send out special 1099s for them. But if you pay someone by cash or check, then you need to submit a 1099.
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.
The consequences of losing your 1099 for your tax return
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.
What to do when losing your 1099 tax form
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:
Get a replacement
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.
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.
Review and sum up all your invoices and receipts from the prior year
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.
Request an IRS transcript
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.
How to avoid losing your 1099 forms
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.
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..