As the Year-end is approaching, it is the time for information return filing. Form 1099 needs to be filled with a specific set of rules, and if not filled out correctly, the organization can be subject to fines or other possible reporting and financial issues.
The reason you need to fill an IRS Form 1099 is that you received income as a sole owner of an LLC, sole proprietor, independent contractor, or a self-employed person. Unfortunately, there are several mistakes made while filling the Form 1099.
Common Mistakes on Form 1099
If your organization falls in the category of independent hiring, Form 1099 is incredibly crucial. Here are some of the common mistakes to avoid in filing form 1099:
Misunderstanding the Form 1099
There are several 1099 forms, from 1099-DIV and 1099-R to 1099-MISC and 1099-INT. Each of these forms has some specific tax reporting requirements. For instance, form 1099-INT is an IRS tax form. It is employed to record interest income paid to people. Basically, 1099-INT records the total amount that is paid by the financial organization to an individual during a year. It is crucial to report the income on the taxes. Those who are not able to do so could be subjected to an audit. It can result in paying back taxes along with costly interest and penalties. So, make sure to educate yourself on form 1099 and what it entails.
Not writing About all Business Expenses
If you are looking forward to saving money, it is vital to write about all the business expenses. For instance, you operate primarily from home and seldomly venture outside of the house for business affairs. On occasion, you may have to travel to client offices. That expense qualifies as an office expense.
Not Having Enough Records
The IRS needs proof for all your business receipts, mileage, and other important documentation to justify that the transactions happened. For any reason, if you are not able to provide this information, you may have to pay taxes and penalties.
Writing About Personal Expenses
A lot of self-employed folks and independent contractors use the same phone for business and personal use. The same goes for various other stuff. Definitely, the IRS will not be pleased if you choose to write off both business and personal expenses. So, estimate the percentage of the cost that is related to personal and business use.
Final Words
Use these tips to understand the form 1099. Keep the receipts and expenses organized so that you can claim for the maximum amount of reductions you are eligible for.
