Key Takeaways
- Businesses that send you a Form 1099 are also required to send the same information to the IRS. So, if you don't include reportable income on your tax return, the system that matches tax returns to the information in the IRS systems will likely flag your tax return for further evaluation.
- When the IRS believes that you have left off reportable income from your tax return, they will typically send you a notice asking you to respond about the missing information. Often, the IRS will recalculate your tax return by including the missing income and determining the amount of tax they think that you owe. This can include penalties and interest.
- If you realize that you didn't include some income on your tax return, you can file an amended return that includes the missing information. It is usually better if you catch the mistake and file an amended return than waiting for the IRS to find the error.
- The IRS can impose penalties and interest for any taxes that are not paid by the original due date of the tax return.
Filing with Form 1099
Form 1099 is an informational form that reports payments a business or financial institution makes. You'll get a 1099 if you received reportable payments during the year, and the IRS gets a copy, too. Examples of businesses that might send you a 1099 form include:
- Companies that paid you non-employee compensation
- A bank where you received interest income during the year
- Brokerage firms where you received dividends or had stock transactions
- Investment firms that send distributions from a retirement account.
There are many different kinds of 1099 forms. Some examples include:
- 1099-DIV - reports dividends
- 1099-C - reports the cancellation of debt which is sometimes taxable
- 1099-R - reports distributions from retirement plans
- 1099-NEC - reports payments of non-employee compensation to independent contractors.
Dozens of situations could call for a Form 1099. They all typically cover payments you receive that need to be reported on your tax return.
If you are a business owner, you may need to send 1099 forms to people that you made business-related payments to.
Will the IRS catch a missing 1099?
The IRS knows about any income that gets reported on a 1099, even if you forgot to include it on your tax return. This is because a business that sends you a Form 1099 also reports the information to the IRS.
The IRS cross-references tax returns with other income records that businesses submitted. This can help reveal discrepancies or unreported income.
If you don't include taxable income on your return, it can lead to penalties and interest. The IRS may charge penalties and interest beginning from the date they think you owe the tax.
There are times when leaving a 1099 off of your tax return doesn't change it. And sometimes including a missing 1099 can actually reduce the tax that you owe. More on that later.
Do I need to report income if I didn't receive a 1099?
You should report all taxable income - regardless of whether it is documented on a 1099 or not. The IRS requires you to report all of your earnings, whether they come from traditional employment or other sources.
For example, imagine you're a freelancer and did work for a business. But the client, for some reason, didn't send you a 1099. Whether it's an oversight, or a lack of knowledge on their part, the obligation to report that income falls on you. So, it’s important to keep a record of any income you earn throughout the year.
You should even report income from sources that may seem trivial, like income from side projects, cash tips from a service job, or income from a small-scale business.
What Happens if I lost my 1099?
Losing a 1099 happens more often than you think, and it’s a fairly simple process to get a replacement form.
First, you'll need to contact the business that issued your 1099 and ask for a replacement. They'll likely request some personal information to verify your identity. This could include your Social Security number, your full name, and possibly your address or phone number.
Be sure to keep all your tax documents, including your replacement 1099, in a safe place where you can find them when you file your taxes.
Amending your tax return
If you catch missing information on your tax return before the IRS does, then you should file anamended tax return. You'll useForm 1040-X, Amended U.S. Individual Tax Return. You should provide a clear explanation for the reason that you are amending your return. Send a copy of any 1099s that weren't included with your original tax filing.
When you amend your tax return, you may have to file additional forms. For example, if your missing income was from self-employment, you may need to fileSchedule C. You should also include anyqualified business expenses that you had. These expenses can lower your total self-employment income. They could even make your income negative if your expenses are more than your gross self-employment earnings. This could reduce your total taxable income and the total tax you owe.
If your amended return shows that you owe more tax, thenyou should pay as soon as you can. This helps reduce interest charges and possible penalties. You can mail a check with your amended return if you are filing on paper. If you file online, you can make a payment with a Form 1040-V voucher. You can also make payments online at the IRS website.
If the IRS finds the error before you do, they will usually send a notice. The notice usually proposes an adjustment to your tax return. It also states any additional tax, and perhaps penalty, that they believe is due. If you agree with the IRS notice, you can sign their form and pay the amount that they ask for. If you do that, you won't need to file an amended tax return.
TurboTax Tip:
If your missing 1099 is for self-employment income, you should file Schedule SE, with your amended tax return.
Updating self-employment tax forms
If the missing 1099 is for self-employment earnings, and your net self-employment income is at least $400 for the year, you should file a Schedule SE with your amended return. The IRS uses this form to calculate your self-employment tax. This includes Social Security and Medicare taxes.
Penalty for not reporting taxable income on your tax return
There are several penalties the IRS can levy for not reporting all of your taxable income. The largest is typically the penalty for significant understatement of your tax liability. This is an accuracy-related penalty. In most cases, this applies when taxpayers understate their tax by the greater of 10% of the correct amount or $5,000. In these cases, the penalty is 20% of the understated tax. The IRS can also charge interest on any tax that has not been paid as well as on any assessed penalties.
Will I get audited if forgot a 1099?
Remember thatan audit is not a certainty just because of a missing 1099. The IRS receives a lot of information and only audits a small percentage of tax returns each year. However, it's still important to correct your tax filing.
Forgetting to include income from a 1099 form can be costly but, in some cases, can actually lower your tax. What is important is to be as accurate as possible when completing your tax return. This helps you avoid owing additional tax and penalties. It can also keep you from missing out on deductions that could lower your tax and possibly increase your refund.
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