Business startup, taxes, and technology

What should I do if my 1099 has the wrong amount?

Try to get the person or company who sent it to fix it. But I don’t advise you to report the corrected amount on your tax return because you can’t be sure that the IRS will get it before you file your 1040.

For your own records, you should always write out an explanation for the mistake and attach it to any bills or receipts you have to prove that your calculation of the number is actually the right one. If you get a corrected 1099, keep it in your files along with your documentation of the error.

Do NOT send this paperwork to the IRS.

The reason I recommend that you start off by reporting an incorrect number is that it will match the original 1099 that was sent to the IRS. I explained here why that’s so important.

Suppose the amount reported to you as non-employee compensation is $1200, but your records show that it should be only $1115. Go ahead and include $1200 on Line 1 of your Schedule C (so it will match the 1099 sent to the IRS), and deduct $85 (the amount of the error) as an other deduction on Line 48 in Part V.

What should I do if the income reported on the 1099 doesn’t all belong to me?

Sometimes a 1099 is given to an individual for income that belongs to several people.

For example, your unincorporated musical group performs as independent contractors for a local night spot. The bookkeepeer for the bistro only has your social security number, since you’re the spokesperson for the band and you do all the contract negotiations. So she sends you a 1099 that reports the total amount paid to the band.

What should you do?

First of all, make sure the bookkeeper gets the other band members’ social security numbers and request (politely, but firmly) that next year she send a separate 1099 to each performer. That’s the law.

For this year’s tax return, you should include the total amount on Line 1 of your Schedule C (so it will match the 1099 sent to the IRS), and report the amount actually paid to your fellow musicians on Line 10 Part 2 (commissions and fees) or as an other deduction on Line 48 in Part V.

You should also give 1099s to the other band members. That way you’ll have complete documentation to prove your numbers if the IRS decides to audit your return.

What if you don’t get a 1099?

The answer to that is really part of a larger discussion about what income you have to report. I’ll tackle that one tomorrow.