Today's tax question comes from James in California. He asks:
"One of our independent contractors received a 1099 for more than what he actually earned from us. We were supposed to issue him a new 1099 but the person who does that is not in today... and he has to have it by monday for his tax accountant. What should he do??? Should the tax accountant go ahead and file with the inflated amount and make an adjustment later....or what?
HELP!!"
Initial answer:
Is the company definitely going to issue him a corrected Form 1099-MISC?
Follow up response:
"Yes, as soon as the person comes back on Monday. No one here knows how
to access the 1099 module in the system."
Basically, the contractor should file an extension, and then prepare his tax return using the corrected Form 1099-MISC. If the contractor thinks he will owe the IRS, he should prepare a draft tax return using all the information he currently has about his business income and expenses, and mail the IRS a check for the amount he estimates that he owes. That payment should be made using Form 4868, the request for an Automatic Extension of Time to File.
He should then revise his tax return using any corrected information he receives about his income before filing his return.
Although this will take extra time now, he should file only when the return is accurate and complete, that way he will have confidence that he is paying the right amount of tax.
Additionally, the corporation may have to pay a penalty for failing to report the correct amount of income on Form 1099-MISC.
The penalty is $15 per incorrect 1099 if the corrected 1099 is filed within 30 days of the original deadline for filing Forms 1099 and 1096 with the IRS. The penalty rises to $30 per incorrect 1099 if the correction is filed by after 30 days but before August 1, and $50 per incorrect 1099 if the correction is filed after August 1. The IRS will waive the penalty if the corporation can show reasonable cause. For more information, see the Instructions for Forms 1099, Failure To File Correct Information Returns by the Due Date. The IRS also provides instructions on how to file corrected 1099 forms.
Throughout the tax season I will be answering one tax question per day. Do you have a question? Visit the Ask a Tax Question page. Disagree with my answers? Post your comments in the Tax Forum.
"One of our independent contractors received a 1099 for more than what he actually earned from us. We were supposed to issue him a new 1099 but the person who does that is not in today... and he has to have it by monday for his tax accountant. What should he do??? Should the tax accountant go ahead and file with the inflated amount and make an adjustment later....or what?
HELP!!"
Initial answer:
Is the company definitely going to issue him a corrected Form 1099-MISC?
Follow up response:
"Yes, as soon as the person comes back on Monday. No one here knows how
to access the 1099 module in the system."
Basically, the contractor should file an extension, and then prepare his tax return using the corrected Form 1099-MISC. If the contractor thinks he will owe the IRS, he should prepare a draft tax return using all the information he currently has about his business income and expenses, and mail the IRS a check for the amount he estimates that he owes. That payment should be made using Form 4868, the request for an Automatic Extension of Time to File.
He should then revise his tax return using any corrected information he receives about his income before filing his return.
Although this will take extra time now, he should file only when the return is accurate and complete, that way he will have confidence that he is paying the right amount of tax.
Additionally, the corporation may have to pay a penalty for failing to report the correct amount of income on Form 1099-MISC.
The penalty is $15 per incorrect 1099 if the corrected 1099 is filed within 30 days of the original deadline for filing Forms 1099 and 1096 with the IRS. The penalty rises to $30 per incorrect 1099 if the correction is filed by after 30 days but before August 1, and $50 per incorrect 1099 if the correction is filed after August 1. The IRS will waive the penalty if the corporation can show reasonable cause. For more information, see the Instructions for Forms 1099, Failure To File Correct Information Returns by the Due Date. The IRS also provides instructions on how to file corrected 1099 forms.
Throughout the tax season I will be answering one tax question per day. Do you have a question? Visit the Ask a Tax Question page. Disagree with my answers? Post your comments in the Tax Forum.
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