More Americans today are performing contract work either on a full-time or part-time basis. If you were an independent contractor in 2017, then it’s your responsibility to track that income individually. This is where 1099 forms come into play. Unfortunately, there are a number of mistakes contractors make with 1099 income. Keep reading as we dive into the five most common ones and how you can avoid being audited by the Internal Revenue Service.
Misunderstanding the form altogether – There are several different 1099 forms, from 1099-MISC and 1099-INT to 1099-DIV and 1099-R. Each has specific tax reporting requirements. Take 1099-INT, for example. This is an IRS tax form that’s used to report interest income paid to individuals. Essentially, 1099-INT reports the total amount paid by the financial institution to an individual during the course of a year. Contractors often ask, “Well I never got a paper form, so I don’t have to do anything, right?” Not true. It’s imperative that you self-report the income on your taxes in this case. Those who fail to do so could be subject to an audit, which could result in paying back taxes plus costly interest and penalties. Our best piece of advice here is to make sure you educate yourself on 1099 forms and what they entail.
Not writing off all business expenses – Are you looking to save money as a contractor? Then writing off all business expenses is a must. Let’s look at a hypothetical to provide some clarity for this. You work primarily from home and rarely venture outside of your residence for business matters. On occasion, though, you must commute to client offices. That mileage qualifies as a business expense. So be sure to account for that during tax season. The last thing you want is to overpay hundreds or thousands of dollars in taxes.
Not keeping adequate records – The IRS requires you to keep proof of all business receipts, mileage, and other documentation to prove that the transactions actually happened. Should you be unable to provide this information for whatever reason, you may be on the hook for back taxes and penalties.
Writing off personal expenses – Plenty of independent contractors and self-employed folks use the same phone for personal and business use. The same goes for contractors and vehicles. Obviously, the IRS won’t be happy if you choose to write off both personal and business expenses. So you must estimate what percentage of the cost is related to personal versus business use. It may seem like an inconvenience at first, but it’s certainly better than the alternative.
Counting expenses more than once – In the QuickBooks Resource Center, it’s explained that most people use the Standard Mileage Rate when figuring out car expenses to write off. Be aware that the Standard Mileage Rate includes things such as gas, repairs, maintenance, lease payments, insurance, depreciation, and registration. As aforementioned, avoid counting the expense a second time with personal transactions.
The Go-To Spot to File 1099 Forms
Now that you know about which mistakes to avoid when filing, it’s time to get started with 1099 preparation. OnlineFileTaxes.com is the easiest way to file your 1099 forms in 2018. Thanks to our services, there’s no need to invest in pricey software that will only be used once a year. Say goodbye to administrative and IT costs associated with year-end processing. What makes OnlineFileTaxes.com so great is that your online files are electronically sent to the IRS for fast, efficient, and simple filing. Our team even prints and mails recipient copies for you to keep for your convenience.
Whether you’re an individual entity or business owner with multiple employees, we can help. OnlineFileTaxes.com can help you effectively manage those 1099 online forms. Maybe you need just one copy of 1099 forms. On the other hand, there’s a chance you might need hundreds. Whatever the case, we have a solution for you. You don’t have to stress about tax season any longer. OnlineFileTaxes.com allows you to get your filing done correctly and efficiently so you can get back to focusing on your business.
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