Don't Ignore 1099s!
With the onset of the tax season (and yes, even with the recent partial government shutdown, the IRS expects you to file on time) comes the annual onslaught of the various types of Form 1099. Among others, you have Form 1099-INT for interest income, 1099-DIV for dividend income, 1099-B for sales of securities and the dreaded 1099-MISC, which reports such income as rents received or nonemployee compensation.
Generally speaking, businesses must send out 1099s to payees no later than January 31st of each year, under threat of penalty if they fail to do so. For example, a business must provide a 1099-MISC to anyone or any entity other than a corporation (think partnerships and LLCs) to whom it has paid $600 or more for rent or services. As with everything, there are exceptions to this basic rule, such as banks having to give you a 1099 for interest income paid to you of $10 or more.
Don't Ignore 1099s Warning #1!
Obviously, Uncle Sam loves 1099s because it makes their job of tracking income easier, which explains why over the years the requirements to file them have become ever more extensive and a real burden on every business.
If you are in business, you cannot afford to ignore the 1099 filing rules. Even the smallest sole owner businesses are not exempt from the requirement to file, and the penalties for not doing so, or even for filing late, can be quite expensive.
These penalties are assessed based on each failure to report. In other words, you may have filed some 1099s, but if you did not file all that are required, each such failure can cost you in a big way.
Diligence in knowing the rules and then timely filing the 1099s is critical, even in the face of taking heat from potential recipients who unethically would ask you not to file one for them or may refuse to give you their information. More on that later.
Don't Ignore 1099s Warning #2!
Say you are a 1099 recipient and you believe the 1099 is incorrect or that you should not have received one at all. What should you do?
The first step is to talk to the payer/issuer about the problem. Hopefully, you can determine together if indeed it is wrong, and if so, the payer can issue a corrected one. However, if the payer refuses to do so, then you should take steps to explain it on your tax return.
Whatever you do, do NOT just ignore it. Rest assured the IRS will not, and eventually you are likely to hear from them. Many inquiries and even audits get started this way, so take steps to fend that off.
Don't Ignore 1099s Warning #3!
Now, what to do if you think you should receive a 1099, but do not?
First of all, please understand that if you know you have income, you have a legal and (in my opinion) moral responsibility to include it on your tax return whether or not a 1099 comes. So, assuming you are required to file a tax return, do the right thing and report it. The IRS and state agencies have no issue with MORE income being reported than what is shown on 1099s, just LESS!
And in case you are tempted to not report it, remember that just because you did not receive a 1099 does not mean one was not filed with the government, or that one will not be sent in after you file your tax return. It is not all that uncommon for businesses to file 1099s late. Plus, you never know when you did not get one because it was lost in the mail or something else prevented it from getting to you. Rest assured, you WILL hear from the IRS in that case.
Some final thoughts ñ if you are in business, you may worry about how you are going to convince those you pay to give you the information you need for the 1099, particularly the recipients' taxpayer identification number. You can combat this by always requiring those you are about to pay to complete a Form W-9 BEFORE YOU AGREE TO DO BUSINESS WITH THEM OR PAY THEM. Getting paid is a powerful incentive!
And if you are the one getting paid, please don't be a pain you know where and refuse to provide your information when asked! Remember, the payer is doing the right thing and your refusal subjects them to financial loss by exposing them to needless penalty.