Hey, My IRS Form 1099 Is Wrong ... Maybe Intentionally

Did you receive any IRS Forms 1099 that you think are wrong? Maybe someone actually paid you $1,000, but reported that they paid you $10,000? The 1099 rules are complex and voluminous, and mistakes happen. But how should you handle it? And what if you think someone intentionally misreported? There’s no easy answer. Some reporting rules (for example, to lawyers and their clients) call for duplicate reporting that can make it seem as if $1,000 was really $2,000.

But more generally, incorrect Forms 1099 are not uncommon. At a minimum, one can read the 1099 regulations broadly, erring on the side of reporting. When in doubt, issue a Form 1099, many say. A few observers may even think of issuing IRS Forms 1099 in a kind of punitive way, to turn the tax tables on someone. If you receive a Form 1099 you think is wrong, you can ask the payor to correct it. They can destroy the incorrect one if they have not already sent it to the IRS. If it's too late, they can issue a corrected form.

Issuers face penalties for errors, but most of those penalties apply to failures to issue the forms. There are a few examples of private lawsuits over tax reporting forms. But the IRS won't get involved, and most such suits fail. So stick to trying to get your situation corrected, or explained to the IRS on your return. Issuing Forms 1099 is something businesses do to verify that payments were made, and to help support tax deductions. Of course, by issuing a Form 1099, you are generally also sticking the recipient with paying taxes on the item. In that sense, some IRS Forms 1099 may conceivably be issued with a kind of punitive intent.

 Last year, boxer Floyd Mayweather Jr. sent an IRS Form 1099 to a strip club to report that he dropped $20,000. Mayweather Promotions LLC sent the form to the Hustler Club for $20,000, mostly cash tips for dancers. The club claimed it didn't see the money paid to the 'independent contractors.' Still, the club must report it. Forms 1099 are critical to tax returns, and you are almost guaranteed an audit or tax notice if you fail to report one. Each Form 1099 is matched to your Social Security number, so the IRS can easily spew out a tax bill if you fail to report one. It matters a lot, especially now that the IRS has six years to audit, not three.

Forms 1099 are supposed to be mailed to the taxpayer by January 31st, though some companies issue the forms throughout the year when they issue checks. Although the initial deadline is January 31, issuers of the forms have traditionally not been required to file copies of all Forms 1099 with the IRS until the end of February. That one month delay was helpful, allowing a window of time to address errors. So contact the issuer if you receive one you believe is in error.

However, there is an important change in 2017 (covering 2016 Forms 1099-MISC). For those forms reporting non-employee compensation in box 7 of 1099-MISC, January 31, 2017 was the due date for sending forms to the taxpayer and to the IRS. For that category, there is no one month reporting delay. Forms 1099 are controlled by your Social Security number, so even if an issuer has your old address, the information will be reported to the IRS (and your state tax authority).

Forms 1099 remind you that you earned interest, received a consulting fee, or were paid some other kind of income. There are many varieties, including 1099-INT for interest, 1099-DIV for dividends, 1099-G for tax refunds, 1099-R for pensions and 1099-MISC for miscellaneous income. These forms are sent by payors to you and the IRS. If you don’t include the reported item on your tax return, the IRS issues a notice.

In fact, apart from wages, whatever you were paid, is likely to be reported on a Form 1099. Companies big and small churn them out. If you’re in business–even as a sole proprietor–you also may need to issue them. The most common is Form 1099-MISC, which can cover just about any kind of income. Consulting income, or non-employee compensation is a big category.

If you don't receive a Form 1099, you may not want to ask for it. If you don’t receive a Form 1099 you expect, just report the income. Reporting extra income that doesn’t match a Form 1099 is not a problem. The IRS does not consider that a mismatch. Only the reverse is a problem.

If you call or write the payor asking for a Form 1099, the payor may issue it incorrectly. Alternatively, you may end up with two, one issued in the ordinary course (even if you never received it), and one issued because you asked for it. The IRS computer may think you had twice the income you really did.

For example, if you settled a lawsuit, don't ask for a Form 1099. Just report it, if it is income. Generally, everything is income, including money for settling a lawsuit. One of the few exceptions is lawsuit recoveries for physical injuries. Damages for physical injuries are tax-free under Section 104 of the tax code. Yet only physical injuries and physical sickness qualify, one of 10 things to know about taxes on legal settlements.

Article was written by:

Robert W. Wood and published in Forbes on February 1, 2017. 

Original article here

What You Should Know Now About Tax Season

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It's a new year and time to put the last one to bed, which means filing your taxes.

The Internal Revenue Service says to expect a few changes when the nation's individual income tax filing season opens on Jan. 23.

Here are some of the changes you should be aware of:

NEW DATE: Taxes are usually due on April 15, but this year that falls on a Saturday. And Emancipation Day, a holiday in Washington, D.C., will be observed on Monday, April 17.

So that pushes the nation's deadline to file returns and pay any amount due to April 18.

You don't have to wait until then to meet with a tax professional or start the process though.

DELAYED REFUNDS: A new law may delay refunds for some low to moderate income taxpayers who file early.

The Protecting Americans from Tax Hikes Act, known as the PATH Act, requires the IRS to withhold refunds on tax returns claiming the Earned Income Tax Credit or the Additional Child Tax Credit until mid-February. The change is designed to give the IRS more time to detect and prevent tax fraud.

The affected refunds will start being released on Feb. 15 but they may not arrive in bank accounts until the week of Feb. 27, as it will take more time for financial institutions to accept and deposit the refunds. The three-day holiday weekend involving President's Day on Feb. 20 may also affect the timing of when funds are available.

The IRS said it still anticipates issuing more than nine out of 10 refunds in less than 21 days.

Those with questions can use the "Where's My Refund?" tool on the IRS.gov website and the IRS2Go phone app to find projected deposit dates for early EITC and ACTC refund filers a few days after Feb. 15.

NEW ID NUMBERS: The PATH Act also requires that certain individual taxpayer identification numbers, known as ITINs, be renewed.

Any ITIN that hasn't been used on a tax return at least once in the past three years, as well as any ITIN with middle digits of 78 or 79, must be renewed before a return can be processed. Anyone filing a tax return with an expired ITIN could experience return processing and refund delays, as well as denial of some tax benefits until the number is renewed. An ITIN renewal application could take up to 11 weeks to process during tax filing season.

ITINs are used by people who have tax-filing or payment obligations under U.S. law but are not eligible for a Social Security number.

Article was written by:

Sarah Skidmore Sell and published in The Associated Press and ABC News on January 15, 2017. 

http://abcnews.go.com/Business/wireStory/now-upcoming-tax-season-44789838

 

Tax Organizers

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The time has come once more as we begin another year. We sent out the annual client organizers today. These handy road maps will help guide you on the information we need to prepare your tax return.

Contact our office if you have any questions or if you need tax service. We look forward to helping you with all of your income tax questions and needs.

35 Bizarre Things You Can Be Taxed On

Once the Yuletide log burns out and the New Year's ball drops, it's soon time for
a less-joyful annual tradition: Calculating how much money you owe the
Internal Revenue Service.

We all know that Uncle Sam takes a share of our earnings, but have you
considered other events in the past year that you may owe taxes on? You might
be surprised at all the ways Uncle Sam can lighten your wallet.

1. You Caught a Baseball
You are the lucky fan who catches a historic home run ball from the outfield
bleachers. The not-so-lucky part? The IRS could hold you responsible for the
resale value of the ball as soon as it hits your glove — even if you weren't
planning to sell it.

2. You Found a Pot of Gold
You finally found the cache at the end of the rainbow. Or maybe you found a
stash of rare baseball cards hidden in the wall of your home during a remodel,
or a treasure chest while scuba diving in a shipwreck. Under the same
regulation that applies to the baseball, the treasure trove rule, that windfall is
taxable to you the first year that you find it. Sadly, this means that you may be
forced to sell all or part of your find even if you wanted to keep it.

3. You Held Up a Liquor Store
It doesn't matter if you got it illegally: Stolen money or property should be
reported, lest a tax evasion charge be added to your legal woes when you get
caught. Says the IRS, "If you steal property, you must report its fair market
value in your income in the year you steal it unless in the same year, you return
it to its rightful owner."

4. You Accepted Hush Money
The IRS is blunt on this one: "If you receive a bribe, include it in your income."

5. You Dealt in Illegal Goods
If you made money dealing drugs or by any other illegal form of self
employment, the IRS requires you to report it on Schedule C.

6. You Hit the Jackpot
Yes, you have to pay taxes on your lottery prize. Yes, if you have been buying
lottery tickets all year, you can also deduct the expenses. But you have to keep
a diary of wins and losses, and the IRS has specific instructions on how to do
that.

7. You Stuck the Landing and Won Gold
It's estimated that Michael Phelps will owe $55,000 to the IRS on his Rio
winnings — the medals and the cash prizes that come with each are taxable.
Many other Rio champions will get off scot free, however. That's because
Congress recently passed a law to exempt Olympians from "victory taxes" — but
only for athletes who earn a million dollars a year or less. Phelps earned an
estimated $12 million in endorsements alone in 2016, so he doesn't get that
break.

8. You Got a McArthur Genius Grant
It would feel great to win this $625,000 no-strings stipend, or the
approximately $1 million that comes with the Nobel Prize. That good feeling
won't protect you from the tax bite, though. You're required to pay taxes on all
such awards — unless you have them directly transferred to a recognized
charity. That's what President Obama did with his 2009 Nobel Peace Prize
winnings.

9. You Are Gifted
Usually, the presents you unwrap over the holidays come to you tax-free, but
there are some exceptions. Cash or a gift card from your boss is taxable as a
fringe benefit. A hostess gift you receive as a thank-you for having a sales party
in your home is taxed as miscellaneous income. Personal gifts, though, are
generally safe from the tax man.

10. You Airbnb'd Your Pad
Just like regular rent payments, money you earn by hosting Airbnb guests is
counted as part of your gross income. The exception: You don't have to pay if
you live in the home and rent it out for two weeks or less per year.

11. You Got Your Social Security Check
It may seem nonsensical that the government pays people and then collects tax
money on those payments, but that's how it goes. However, SSI, or disability
benefits, are not taxable.

12. You Divorced Well
Alimony you receive from your ex is taxable income, but child support payments
are not. For this reason, it's important to know how payments are categorized in
your divorce settlement.

13. You Won a Scholarship
If you win a grant that covers your tuition and books, that's tax-free. But if it
pays for room and board or travel, pay up.

14. Your Fantasy Football Team Won the Super Bowl
If you win at least $600 worth of cash and prizes from a business operating a
fantasy sports league, they'll file a 1099-MISC with the IRS. But even if you win
less or your league is informal, you are still supposed to pay on your winnings.

15. Triple 7s Came Up
Just like with the lottery, the IRS gets a cut of your casino winnings once they
surpass the amount you document losing. Usually it's a flat 25%.

16. You Spun the Wheel of Fortune
It's simple enough to pay the tax if you win a cash prize, but if you win a car or
vacation, you still owe tax on its value — which can be tough to pay if you didn't
also win cash. Because of this, it's often wise to take the cash equivalent of a
prize if offered.

17. Your Debt Was Forgiven
The IRS is very specific about this: If a debt is cancelled as a gift to you — for
example, if Grandpa says, "Merry Christmas, you no longer owe me for that
time I bailed you out!" — you don't have to pay taxes. Otherwise, you do.

18. You Traded a Haircut for Cigarettes
This may surprise you, but if you receive goods or services in exchange for
services you render, the IRS expects you to include the value of those in your
gross taxable income.

19. The Boss Lets You Take the Ice Cream Truck Camping
If you drive your company car to work and home, or use it on weekends, this is
a taxable fringe benefit and you should be tracking and reporting your personal
miles.

20. Your Bitcoins Doubled in Value
Bitcoin is a virtual currency that is represented by computer code, but it can be
used to buy real goods and services. So of course, the IRS considers gains in
this or any other virtual currency taxable. It's considered a capital asset like
stocks and bonds, so if you buy Bitcoins low and sell them high, the difference is
your profit. But it can be even more complicated than that: If you create new
Bitcoins by mining, you have to count those as income, too.

21. You Got a Blogger Freebie
If a widget maker sends you their SuperWidget 2000 to review and you get to
keep it, you just received a taxable payment. However, you don't owe taxes on
the market value of the product — just what the company agrees it's worth.
Make sure to put an agreed-upon value in your contract.

22. You Sold Stuff on eBay
If you occasionally sell your kids' outgrown clothes on eBay, you won't owe
taxes because you most likely took a loss on the items. But if you create a
resale business on eBay, you better believe you have to report your profits.

23. You Had a Yard Sale
Like eBay, most yard sale transactions are not income producers, but if you're
one of those people who holds a sale every weekend and resells stuff at a profit,
do the right thing.

24. You're a Child Entrepreneur
Starting a small business, whether it's dog walking or selling handmade items,
can be a great activity for a tween or teen. But don't expect them to be IRSexempt
just because they're kids. If the business earns more than $400, file a
tax return.

25. You Set Up a GoFundMe Campaign
This is one of those tricky gray areas. If you start a crowdfunding benefit for
someone in need, the donations should be considered personal gifts. But if the
gifts run into the large numbers, the crowdfunding site may file a 1099,
reporting the transaction to the IRS. A word to the wise: If you are setting up a
crowdfunding campaign for a needy friend, make sure it's in their name so you
don't end up wondering if you need to pay taxes on money you handed over to
them. And consult an accountant before going down this route.

26. You Asked for Spare Change
There are differing opinions out there over whether quarters dropped in a
panhandler's cup are considered earned income or a gift. Since panhandlers
tend to live below the poverty line, they probably wouldn't owe any income
taxes, either way. A more pressing issue for many would be whether the
panhandling counts as earned income, qualifying recipients for the earned
income tax credit, which could lead to a cash payment from the IRS even if the
panhandler pays no taxes.

27. You Received Punitive Damages
Court settlements vary in their tax treatment. If you get a settlement in court to
compensate you for a physical injury or emotional distress stemming from an
injury, the money isn't taxable. But if you get paid for emotional distress not
tied to an injury, or you receive punitive damages, you have to pay.

28. You Cashed in Your Life Insurance Policy
If you die, your beneficiaries probably won't be taxed on your life insurance
payout. But if you cash it in while you're alive? Any profit you made on the
policy — that is, the value in excess of premiums paid — is taxable.

29. Your Champion Pug Had a Litter
Whether you breed your dog as a business or a hobby, money made selling
puppies is taxable income. However, it's also not cheap to breed and raise
puppies, so once you deduct stud fees and all those vet bills, you may not
actually show a taxable profit for your prize pups.

30. You Put on the Red Light
Just like dealing drugs, if you sell your body in a jurisdiction where that's illegal,
you still have to report the income on Schedule C. In fact, smart high-earning
prostitutes declare their income to put themselves into the position to buy a
house or get credit.

31. You Couldn't Get Out of Jury Duty
If you got $15 for sitting on a jury, that's taxable income, even if you turn it
over to your employer. However, if you did turn it over to your employer, you
also put in a deduction for the same amount on your tax form so your gross
income will remain the same.

32. You Got a Tax Refund
Last year's state and federal refunds are taxable in some situations.

33. You Exercised Stock Options
This is one that has gotten a lot of tech workers into financial hot water. If your
company gives you stock options, that's not a taxable event. But when you
exercise the option by purchasing stock in your employer at a discount, that is a
taxable event even if you don't sell the stock right away. This can go bad if the
stock declines in value after you exercise the option, because now you may owe
the IRS more money than you can raise by selling the stock.

34. Your Landlord Is Paying You to Get Out
In rent-controlled areas with high demand, such as San Francisco, it's common
for landlords to buy tenants out. This is often referred to as a relocation
assistance. This is taxable, but whether to treat it as regular income or a capital
gain is dicey, so you may need professional help with that one.

35. You Are an Undocumented Worker
Despite a common belief that undocumented immigrants don't contribute to
society with tax dollars, anyone working in the U.S. is legally required to pay
taxes, papers or not. And they do pay. Studies show about half of people
working illegally are paying income tax, resulting in about $12 billion per year in
state and local revenue.

Article was written by:

Carrie Kirby and published in WiseBread: Living Large On A Small Budget on December 19, 2016. 

http://www.wisebread.com/35-bizarre-things-you-can-be-taxed-on?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+wisebread+%28Wise+Bread%29