Information return filing is a vital part of your year-end strategy. These forms have a unique set of guidelines. Your company may be susceptible to severe penalties or other significant financial and reporting problems if the forms are not properly filled out. Forms called information returns are typically used to report taxable payments that you or your company made to the government and taxpayers. At year’s end, W-2 and 1099 forms are the two most typical types of information returns. There are many 1099 form types, and it’s simple to file one incorrectly.
You must submit a 1099 form to the IRS if you are a freelancer or small business owner who paid independent contractors or freelancers more than $600 in one tax year. This form, which details the payments you gave the contractor, is a significant record for both the IRS and the contractor.
Although submitting a 1099 form might appear to be a simple procedure, there are a variety of mistakes that you may make that can result in fines, delays, and other problems. In this essay, we’ll review a few frequent mistakes to stay clear of when filing a 1099 form.
1040 vs. 1099
The differences between forms 1040 and 1099 are often confusing. The simplest explanation is given here.
The individual income tax form, known as Form 1040, is utilized by both employees and independent contractors. Each year prior to the tax deadline, you must complete and file Form 1040. Yet, if you have been compensated as a self-employed person, you will receive a form called 1099. Any client that compensated you for your services in the tax year by paying you $600 or more should send you 1099.
You should still declare your self-employment income even if you didn’t earn more than $600 and didn’t get 1099.
Missing Information on Your Printed Form
It is possible to include the incorrect foreign postal code, region, or municipality when submitting your 1099 paper form. Without this information, the IRS may fine you for failing to accurately disclose nonemployee compensation.
Sending a new or revised 1099 or 1096 form is not the way to handle paper form errors. Instead, seek assistance from your state’s or municipality’s tax office. They will assist you in correcting this error before the IRS fines you.
Failure to Meet the Deadline
Missing the deadline is one of the most frequent errors people make when completing a 1099 form. A 1099 form must be submitted by January 31 of the year that follows the financial year for which it is being filed. For instance, the deadline is January 31, 2022, if you are submitting a 1099 form for payments in 2021. If you’re experiencing difficulty with it, the 1099 all-inclusive payroll software enables check-based entry of payroll, non-employee remuneration, and specific additional 1099 data all year long. With just a few mouse clicks, the payroll data may be sent to the W-2/1099 form filer to create year-end documents such as the W-2 and/or 1099 forms.
Penalties and interest fees may apply if the deadline is missed. As a result, it’s crucial to note the due date in your calendar and submit the 1099 form on time.
Not Getting the Right Information
Obliging the contractor to provide accurate information is another error individuals make frequently when completing a 1099 form. The name, address, and taxpayer identification number (TIN) of the contractor must be included on the 1099 form per IRS regulations.
The application will be rejected if any of this data is incomplete or wrong, and you will need to submit a revised version. Asking the provider for their exact name, address, and TIN is essential for preventing this error. You can accomplish this by giving them a W-9 form to complete and deliver to you.
Improper Payment Amounts Reported
Another common error when completing a 1099 form is reporting the wrong payment amounts. All reimbursements, costs, and other payments made to the contractor during the tax year should all be included in the payment amount stated on the 1099 form.
Maintaining precise records of all fees paid to the vendor throughout the year is crucial to avoiding this error. To do this, you can keep track of payments and costs using spreadsheet software or accounting software.
Personal Expenses Are Deductible
Many self-employed individuals and independent contractors use the same phone for both personal and professional purposes. The same is true for both automobiles and contractors. It goes without saying that the IRS won’t be pleased if you decide to deduct both personal and commercial costs. In order to determine how much of the expense is for personal versus commercial use, you must make an estimate. At first glance, it could seem like a hassle, but the alternative is definitely worse.
Failure to Provide All Necessary Copies
You must submit three copies of a 1099 form when you file it, including one to the IRS, one to the vendor, and one to your state’s tax authority (if applicable). Penalties and other consequences may arise from failing to submit all necessary copies.
It is crucial to carefully read the directions for submitting the 1099 form in order to prevent this error. You can find the number of duplicates you have to submit along with where to submit them in the instructions.
The Improper Form Was Used
Another typical error when completing a 1099 form is using the incorrect form. 1099 forms come in a variety of forms, each with a distinct function. For instance, you should use Form 1099-NEC rather than Form 1099-MISC to disclose money paid to an attorney.
It is crucial to thoroughly review the directions for the form and make sure you utilize the correct format for the payment form being reported in order to prevent making this error.
Completing a 1099 form is a crucial component of taxation for freelancers and small business owners. Yet there are a few typical errors you should steer clear of when completing the form, including failing to get the right data, reporting inaccurate monthly payments, skipping to file all needed duplicates, and using the improper form. Now that you are aware of the filing errors to avoid, it is time to begin the 1099 preparation process.
