One of the great things about being self-employed is that no income tax is withheld from your compensation. But you still have to pay taxes on that income and sometimes, your 1099 tax forms will have mistakes. Here’s how to deal with 1099-Misc problems.
Why is a 1099-MISC is Necessary?
The IRS will often still have some idea of how much money you’ve made. Your clients must complete IRS Form 1099 if they’ve paid you more than $600 over the course of the year. Read More
You have decided to take the plunge and become a driver for Uber, Lyft or some other rideshare program. Congratulations! You are now a small business owner and your tax return just got more complicated. The income you earn from Uber is taxable and must be reported on Schedule C of your 1040. However, you may deduct expenses incurred in earning this income.
In January, you should receive a Form 1099-MISC from Uber or whatever company you drive for. The amount should be Read More
All income is taxable unless a law specifically says it isn’t. Here are some basic rules you should know to help you file an accurate tax return:
Taxable income. Taxable income includes money you earn, like wages and tips. It also includes bartering, an exchange of property or services. The fair market value of property or services received is normally taxable…. Read More
So where a business has been treating its workers as independent contractors and there is a concern that the IRS in an audit would not respect this arrangement, what can the business do?
The business should consider entering into the IRS’ Voluntary Classification Settlement Program (VCSP). The VCSP is a voluntary program that provides an opportunity for taxpayers to reclassify their workers as employees for employment tax purposes for future tax periods with partial relief from federal employment taxes. To participate in this voluntary program, the taxpayer must meet certain eligibility requirements and apply to participate in the VCSP by filing Form 8952, Application for Voluntary Classification Settlement Program, and enter into a closing agreement with the IRS. Read More
According to the Internal Revenue Service (IRS), it will hold two free webinars for small businesses on this year’s “Small Business Week,” May 12 to 16. The Webinars focus on several key tax benefits and a special relief program for employers who reclassify their workers as employees.
The webinars will cover payments to independent contractors and filing requirements for Form 1099 on Tuesday, May 13, and avoiding common mistakes on Thursday, May 15. Both webinars will begin at 2 p.m. Eastern Time and last an hour. To register visit the IRS Webinars for Small Businesses page.
About this time of year (and for the next month or so), you might receive a corrected Form 1099 from your broker. Despite presumably their best efforts it is common for some types of investments to make corrections, especially when it comes to allocating the fund income between dividends, qualified dividends, capital gain distributions, and nontaxable return of capital. So why does that happen and what can you do to avoid problems with the Internal Revenue Service?
It happens because mutual funds are complicated. A mutual fund is made up of lots of other investments, so before the mutual fund knows its own income for the year they need to receive that information from the various investments. Then the mutual fund needs to aggregate all of that information and give the info to your broker. Allocating everything Read More
National Taxpayer Advocate Nina E. Olson today released her 2013 annual report to Congress,urging the Internal Revenue Service to adopt a comprehensive Taxpayer Bill of Rights – a step she said would increase trust in the agency and, more generally, strengthen its ability to serve taxpayers and collect tax.
The Advocate also expressed deep concern that the IRS is not adequately funded to serve taxpayers, pointing out that the IRS annually receives more than 100 million telephone calls from taxpayers and that, in fiscal year 2013, the IRS could only answer 61 percent of calls from taxpayers seeking to speak with an IRS customer service representative.
Olson said: “From challenges can come opportunities, and this report presents a ‘21st Read More
The IRS recently issued its “Dirty Dozen” list of tax scams, highlighting fraudulent schemes commonly committed by and upon taxpayers. The annual warning, released to coincide with tax filing season, emphasizes the most egregious schemes involving filing false returns or return items, but it also advises yearlong vigilance against practices that prey upon the unwary and uninformed. The 2013 list is little changed from a year earlier and for a second year is headed by:
1. Identity theft: The IRS spotlighted its measures, including its new Identity Protection web portal, to prevent and combat the growing problem of tax fraud involving stolen identities, which it called one of its top priorities. During 2012, the IRS prevented issuance of $20 billion in fraudulent refunds including those related to identity theft, up from $14 billion in 2011, it said. The IRS also noted that its identity theft enforcement sweep in January led to nearly 300 indictments, complaints, and arrests, on top of thousands of enforcement actions against identity theft tax fraud in 2012. (See “Dozens indicted on stolen identity tax refund fraud charges” in the Journal of Accountancy)
2. Phishing: The IRS again this year warned against fake electronic communications designed to obtain recipients’ information, reminding that the IRS does not initiate contact with taxpayers by email, text messages, or social media to request personal or financial information.
3. Return preparer fraud: In addition to suggesting taxpayers make sure paid preparers sign returns and enter their preparer tax identification number (PTIN), the IRS this year included information about using Form 14157, Complaint: Tax Return Preparer, to report abusive tax preparers.
4. Hiding income offshore: This warning also updated the number of participants in the IRS’s Offshore Voluntary Disclosure Program to 38,000 and its collections to $3.4 billion from the 2009 program alone (March 23, 2009, through Oct. 15, 2009) and $1 billion so far in “up-front” payments from the 2011 program (Oct. 16, 2009, through Sept. 9, 2011). In 2012, the program was extended indefinitely. (See “IRS announces third offshore voluntary disclosure program.”
5. “Free money” from the IRS and tax scams involving Social Security: With fliers and advertisements “appearing in community churches around the country,” promoters of schemes promising refunds for returns with little or no documentation have enticed “unsuspecting and well-intentioned” victims, some of whom have spread the word to friends and relatives, the IRS said. One scheme falsely advises taxpayers to claim the American opportunity tax credit even if they have no current qualifying educational expenses.
6. Impersonation of charitable organizations: Some fraudsters have doubly victimized people hit by a natural disaster by claiming to be working on behalf of the IRS to help them claim a tax casualty loss but instead steal their financial and personal information. This replaced “abuse of charitable organizations and deductions” from the 2012 list.
7. False/inflated income and expenses: Exaggerating wage or self-employment income is a common ploy by some unscrupulous preparers to inflate refundable credits, including the earned income tax credit, by more than any additional tax.
8. False Form 1099 refund claims: One scheme involves issuing a bogus information return, often Form 1099-OID, Original Issue Discount, to the IRS. A refund is then claimed on a corresponding tax return. The IRS says this is based on the theory that “the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS.”
9. Frivolous arguments: The IRS maintains a webpage describing some of the more common and legally fanciful of these theories.
10. Falsely claiming zero wages: A Form 4852, Substitute Form W-2, or “corrected” Form 1099-MISC, Miscellaneous Income, is fraudulently filed to reduce or eliminate income on a legitimate information return. Sometimes it is accompanied by a frivolous argument regarding the income.
11. Disguised corporate ownership: The IRS said it works with state authorities to identify entities by which taxpayers underreport income, claim bogus deductions, and engage in other misconduct.
12. Misuse of trusts: The IRS said it has seen an increase in improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses.
By Paul Bonner, senior editor, Journal of Accountancy , March 26, 2013
Edited and posted by Harold Goedde CPA, CMA, Ph.D. (taxation and accounting)
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