No one wants to get an IRS audit notice, but some taxpayers face a higher risk of audits based on what they report to the tax agencies, and taxpayers who receive Forms 1099 are among this group. What should you know about Form 1099 to help protect yourself against audit complications? Here are five key tips.
1. Report All 1099s
If you receive any Form 1099, include it in your income tax report. Some taxpayers receive this form but aren't sure what to do with it. This is common, but keep in mind that the IRS receives a copy of the form as well, so don't ignore its presence.
2. Track Your Own Income
Everyone who earns income from more than just an employer should track their own income independent of the payers. This is important for two reasons. First, it ensures accuracy since the payer's information could be wrong. Second, it means you won't underreport income, even if a Form 1099 gets lost in the mail. Audits aren't necessarily an accusation, so if you can show your own backup documentation, it can go in your favor.
3. Get Help With Some 1099s
Some forms are more problematic than others. Form 1099-K, for instance, is a recent addition intended to capture money being processed by third parties like credit card processors. Unfortunately, this can lead to double reporting as both the platform and some payees send out their own forms. If you get one of the more esoteric Forms 1099, seek professional help reporting it.
4. Explain Discrepancies Early
If you do end up with a discrepancy between your reportable income and the amounts on Forms 1099, be proactive about explaining it to the IRS. Don't wait for them to contact you. And if you discover a discrepancy later, work with a tax professional and consider amending the return to better explain the differences in reported income.
5. Don't Forget State Agencies
Finally, keep in mind that whatever information the IRS has, your state tax agency has as well. So make sure you also report all forms on state tax returns, make amendments if needed, and work with state tax agencies to explain discrepancies.
Where to Start
Do you need help reporting income on Form 1099? Have you been notified of a correspondence, office, or in-person audit? Start protecting yourself now by meeting with a tax professional who specializes in IRS auditing assistance. Call today to make an appointment and learn your next step. Reach out to local IRS auditing assistance services to learn more.
