What Happens If You Don't Report Income From Your 1099-MISC?
For the last fifteen years, hundreds of thousands of people have discovered the power of the Internet to help them start their own businesses and work for themselves. From bloggers to brokers, accountants to interior designers, people are breaking out of the shackles of the 9-to-5 and living life on their own terms.
Unfortunately, too few independent contractors and self-employed people research their tax liabilities (and the way the rules change when they start their own business) before taking the plunge.
When you work for a company or corporation, they file a W-2 with the IRS, and send you a copy. You use that copy to file your own taxes. When you work for yourself, you should receive a copy of your 1099-MISC from each person for whom you performed more than $600 worth of work (you should get this by February 28th at the latest – if you don't, start calling them and asking for it!)
But what happens if you just ignore the 1099-MISC and don't file your taxes, or forget to report the miscellaneous income when tax time rolls around?
A big fat penalty for not paying, that's what happens. You can also accidentally misjudge how much you owe the IRS and end up with what's called an accuracy-related penalty on top of that, which amounts to one-fifth of your underpayment. Didn't pay them $400 you owed them? Tack on another $80. Didn't pay them $5,000 you owed them? Good luck with that extra $1,000 penalty.
It is absolutely critical that you report all of your income on your form 1040 (which you file with your tax return.) If you don't, you are going to end up with a tax bill that will hoover up all of your profits – and make it even more difficult to scratch out a living for yourself as an independent contractor. And don't forget – just because you don't get a 1099-MISC from someone doesn't mean that the income wasn't reported separately to the IRS. Businesses that you work for have to claim the amount of money they paid to independent contractors in each year, so it won't be hard for the IRS to figure out that you are stiffing them.
Play it safe! If you're self-employed, consider 1099Fire.com's suite of 1099 Software, or bypass the process of doing your taxes entirely and let them take care of all of your tax preparations. It is worth the extra piece of mind, knowing you won't have the IRS coming after you, and you can rest assured that all of your tax documents will be accurate and quickly filed – the first time and every time.
Unfortunately, too few independent contractors and self-employed people research their tax liabilities (and the way the rules change when they start their own business) before taking the plunge.
When you work for a company or corporation, they file a W-2 with the IRS, and send you a copy. You use that copy to file your own taxes. When you work for yourself, you should receive a copy of your 1099-MISC from each person for whom you performed more than $600 worth of work (you should get this by February 28th at the latest – if you don't, start calling them and asking for it!)
But what happens if you just ignore the 1099-MISC and don't file your taxes, or forget to report the miscellaneous income when tax time rolls around?
A big fat penalty for not paying, that's what happens. You can also accidentally misjudge how much you owe the IRS and end up with what's called an accuracy-related penalty on top of that, which amounts to one-fifth of your underpayment. Didn't pay them $400 you owed them? Tack on another $80. Didn't pay them $5,000 you owed them? Good luck with that extra $1,000 penalty.
It is absolutely critical that you report all of your income on your form 1040 (which you file with your tax return.) If you don't, you are going to end up with a tax bill that will hoover up all of your profits – and make it even more difficult to scratch out a living for yourself as an independent contractor. And don't forget – just because you don't get a 1099-MISC from someone doesn't mean that the income wasn't reported separately to the IRS. Businesses that you work for have to claim the amount of money they paid to independent contractors in each year, so it won't be hard for the IRS to figure out that you are stiffing them.
Play it safe! If you're self-employed, consider 1099Fire.com's suite of 1099 Software, or bypass the process of doing your taxes entirely and let them take care of all of your tax preparations. It is worth the extra piece of mind, knowing you won't have the IRS coming after you, and you can rest assured that all of your tax documents will be accurate and quickly filed – the first time and every time.
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