February 10, 2023 | Posted in:

Check Those 1099s

Now is the time you will start receiving year-end informational tax forms. We’re all fairly familiar with W-2s from our employer, but you will also probably receive a number of different 1099s. Make your tax filing experience smooth this year by staying on top of these informational tax returns. Here are some tips.

Types of 1099 Forms

  • Know the different types of 1099s. The most common 1099s that taxpayers receive are:
    • 1099 INT: for interest received
    • 1099 DIV: for dividends received
    • 1099 B: for brokerage transactions (selling stocks and mutual funds)
    • 1099 R: for annuity, retirement, and pension income
    • 1099 MISC: for miscellaneous income
    • 1099 NEC: for non-employee compensation
    • 1099 K: for merchant card activity

Efficient Tips for 1099s

  • Make a list. Review last year’s list of informational tax forms and create a checklist of them. Add to that list any new forms you might expect to receive. Mark them off your list as you receive them.
  • Check for accuracy. Review each of the informational tax forms for accuracy. Is the income, interest, annuity or other income correctly reported? If cost is reported on the 1099 B, is it the correct amount? Make sure your name and your tax ID (Social Security Number) are also correct.
  • Take corrective action. If you have not received your information return by the mid-February, contact the issuing organization. Also call and start the process to correct any errors you find. Make sure you follow up any correction request in writing.
  • Conduct withholding verification. If the supplier withheld any tax on this activity ensure it is noted as well.
  • Understand those 1099 Ks. This is the new kid on the 1099 block and was introduced to try to capture sales activity from places like e-bay and Amazon. If you receive one of these, please pay special attention to the information being reported to you and the IRS. These forms are complicated and track payment processing transactions. If not properly understood, you could inadvertently double book income on your business activity. Note that the lower 1099-K threshold of $600 in transactions was delayed until 2023.

Correcting 1099 Errors

It is early February and you realize the 1099-MISC or NEC you receive is in error. In fact, it overstates your income by $2,000. What should you do?

Gather your facts. Put yourself in the shoes of the vendor, bank or investment company representative. Gather evidence they will need to support your claim to correct the tax form. This includes receipts, e-mails, and statements. Have your account number handy as well.

Contact the vendor. Contact the vendor as soon as you discover the error and ask them to reissue the statement if they have not sent in their information to the IRS. If they have already sent their forms to the IRS, you will need to ask for a corrected form. Start with a phone call and then put your evidence in writing and send it to them via certified mail. Give the vendor a reasonable, yet concrete timeframe to correct the error. You do not want to wonder when a correction is coming, so keep control of the timing for correction if at all possible.

Written confirmation. If the vendor agrees with your change, ask for a letter from them that outlines the correction. File this letter with your tax return to help you defend against a potential audit.

Tell the IRS. After a reasonable attempt to correct the error with no progress, contact the IRS to inform them of the failure to correct your information.

File an extension? If you believe a correction is on the way, you may wish to file a tax extension. Remember, you will still need to pay any tax owed by the original due date. If you do not have assurance of a correction, file your tax return with correct information and provide documentation that outlines the reporting error.


Consult with an Alloy Silverstein CPA

If you have more questions on the employer side of issuing 1099s, take some time to view Alloy Silverstein’s webinar recording on 1099 compliance. For assistance this tax season in completing your return accurately and efficiently, request an appointment with an Alloy Silverstein accountant and advisor today.


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