With the IRS receiving nearly $80 billion in new funding — about $45 billion specifically earmarked for “enforcement” — you can expect more scrutiny.
Nobody looks forward to an exam, and while you can’t prevent some of them, there are some steps you can take to protect yourself.
After all, every IRS Form 1099 and every IRS Form K-1 is linked to your Social Security Number, and each one counts. This may sound like a point you only think about once a year for your April 15 tax return deadline.
But how you deal with IRS information returns like Form 1099s throughout the year affects how difficult it will be for you to file your returns and later interact with the IRS.
You need a system to record and track these information returns because that is exactly what the IRS does.
A lot of what happens at the IRS is computer matching — the endless correlation of tax identification numbers and payments. Even a small discrepancy between what’s on those forms and what you state on your tax return will be revealed and can lead to months of hassles with the IRS. Much of what the IRS does in policing taxpayers is matching information returns. There are different forms for miscellaneous income (Form 1099-MISC), non-employee salaries (Form 1099-NEC), interest (Form 1099-INT), etc.
Another common information form is a Form W-2 reporting wages. If you have a home mortgage and are making mortgage payments, you should receive a Form 1098 from your lender detailing how much interest you paid during the year. When you deduct interest from your tax return, the IRS will cross-check your return against this form to ensure that you have not overstated your deduction.
Look out for these forms when they arrive. You may receive a statement from your bank that looks like your regular statement, but states that it is also a 1099 form.
When you get your 1099s, don’t just pigeonhole them, look at them. Payers must send all 1099 forms to payees no later than January 31. If you receive an incorrect 1099 form, contact the payer who issued it immediately upon receipt.
Explain the error and ask if they have already sent a copy of the 1099 to the IRS. If this is not the case, the payer can destroy the old form and issue a corrected one.
It’s a good idea to record such communications, as you may later find yourself caught up in a jumble of reports. If the payer has already submitted a copy of the erroneous form to the IRS, request a correction. In this case, the payer should issue a “corrected” Form 1099. There is a special field for this.
If you are a partner in a partnership, member of an LLC, or stockholder of an S corporation, you should receive a K-1 form that details how much profit, loss, or income is attributed to you.
Normally it has to be sent to the partners/shareholders no later than March 15th, giving them a month to meet their own April 15th deadline. However, some companies have been known to be late in mailing out K-1 forms.
You may not be able to file your personal tax return until you receive just one more Form K-1. If it doesn’t come, submit a request for an extension to submit your return by October 15.
Remember that payments are due by April 15th.
Robert W. Wood is a tax attorney with Wood LLP. He can be reached at Wood@WoodLLP.com. This discussion is not intended as legal advice.
https://www.ibtimes.com.au/when-irs-form-1099-tax-returns-dont-match-1839029?utm_source=Public&utm_medium=Feed&utm_campaign=Distribution When IRS Form 1099 and tax returns do not match