It’s a common scenario: You neglected to issue a Form 1099 to your business’ contractors. As a result, you are now being audited. During the process, the IRS auditor tells you that you can no longer claim your deductions, because you failed to issue the Form 1099s. What should you do? Here are the answers to the most pressing questions you’re likely to have.
Can the IRS deny your deductions if you didn’t file Form 1099s for your contractors?
In fact, your deduction cannot be denied automatically just because you did not file a Form 1099. It is true, however, that failing to file the proper forms for your contractors can mean that the IRS can decide to take a second look at your deductions.
Are there other ways to provide documentation for your contractors besides Form 1099s?
Filing the correct documentation is essential if you want to prove the legitimacy of any deduction you claim. That’s why it is so important to file Form 1099s for all of your contractors for every tax year. If you did not file the correct form for a contractor, however, then you will need to find another way to substantiate the expense. Some documents you can use include signed statements from the contractor, invoices, bank statements, and credit card transactions.
Will I be penalized for not filing Form 1099s for my contractors?
If you do not file Form 1099s for your contractors, then you will have to pay a financial penalty. For the 2019 tax year, you can be penalized $270 for every Form 1099 you failed to file. If the IRS investigates the matter and decides that you purposefully ignored the rule, then they can penalize you $550 for every Form 1099 you did not file.
If you want to avoid unnecessary trouble with the IRS, then it is important to file Form 1099s for each of your contractors. If you are in need of help preparing your taxes this year, then it’s time to get in touch with The Royce CPA Firm. We have the experience to help businesses, nonprofit organizations, families, and individuals with all of their tax preparation needs. Call us today for an appointment!