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How to File Taxes Without a 1099

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February 10, 2021
Christian Brim
Tax Planning

1099’s are the forgotten form of small businesses. The IRS uses 1099’s to collect information from various sources to help them with compliance, read make sure you file all of your income.

The IRS has expanded the requirements of who must file 1099’s over the years, but the rules are often overlooked or misunderstood by small businesses. Consequently, there are a lot of 1099’s out there that shouldn’t have been filed, and a lot of missing 1099’s. Generally speaking, for form 1099, here are the rules:

  • You must file form 1099-MISC for any person you pay at least $600 during the year during the normal course of business. This means you as an individual don’t need to file a 1099 on your yard guy.
  • Generally, payments to a corporation or LLC do not require you file a 1099.
  • A new form 1099-NEC was created to report nonemployee compensation.
  • 1099 forms are due January 31st of the year following payment.
  • If the payee does not provide you with a tax identification number, you are required to withhold tax at a rate of 24%
  • You are subject to a penalty for not filing required 1099 forms, up to $280 per form.

What happens when you don’t receive a 1099 and you should have?

Good question! First of all, remember that you are required to report all of your income from your business, whether you receive a 1099 or not. For most corporations, their income is much higher than the amount reported on 1099’s.  Simply file your business tax return with your total income from the business and don’t worry if the 1099 amounts match. Of course, if you receive an erroneous 1099 showing an amount that is larger than your total income, request the 1099 be corrected.

Be careful with the tax identification number (TIN). Often the 1099’s are issued to you personally, not the company. When that happens, the IRS will be looking for that income on your personal tax return (form 1040). The best way to handle that is to show it on your return as other nominee income which shows the IRS that income was reported under the business. I wouldn’t recommend trying this yourself, because if you don’t do it right, you will receive a nasty gram from the IRS and increase your chance of audit!

If you still file as a sole proprietor (Schedule C), you may be under more scrutiny since the IRS does match 1099’s for individuals. They haven’t figured out how to do that with corporations or LLCs yet. But as long as you report all of your income, you will be in compliance.

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