One of the drawbacks of being your own boss is you also have to be your own HR person (and hassle with getting your own health care coverage) and your own bookkeeper. Thank goodness I have the hubby as my intern!
Part of my ad hoc office accountant job is making sure that my records agree with those of my various clients. This is critical in tax season, since most of what I report to the IRS can be verified by those numerous 1099 forms from assorted companies.
I've been working on my own full-time for two years now, and for the second straight year, I've had to resolve a discrepancy in taxable payments with a company.
Fortunately, when it comes to money, I'm pretty obsessive about record keeping. So when one client sent me a 1099 that said I got about $5,000 more than I did, I was able to shoot a note right back, along with documentation, to show that they were counting some bills that I sent in December, but that the company didn't pay until January. Many mea culpas later and a new 1099 was sent out.
Unfortunately, I had to follow up a second time with the company.
Although the second 1099 had the correct amount, it didn't have that box "Corrected" checked. I just wanted to make sure that the IRS didn't get two 1099 copies for me from this one company and think I got paid more than twice what I actually did.
This is of special concern this year, since the IRS has already said it's going to be looking more closely at small businesses to help close the Tax Gap.
No problem, said the company accountant. She hadn't sent the IRS a copy of the first 1099. That paperwork's not due to Uncle Sam until the end of February.
I recount my personal payment paper chase as an example for anyone who's been collecting tax statements for the last week or so. As soon as you get any 1099 or other such document labeled "Important Tax Information," you need to check it immediately and thoroughly.
While I paid special attention to this particular 1099 because it was the largest one I get, I must admit that I wasn't so diligent about checking some of the smaller ones, both from employers and investment companies. But after this mistake, I did go back and verify them.
Confirmation of correct data also applies to your W-2. Computer programs sometimes aren't set up properly and miscalculate your tax financial information. Sometimes a minor numerical error, a transposed amount, messes up your actual tax liability.
So if you've just been stacking up those statements on a corner of your desk or stuffed them in a box or drawer until you're ready to file your return, get them out now. If you're getting them by e-mail, don't just ignore the notice that the documents are available for download. Print them out.
Then look them all over. Check them against your year-end statements. And if you see a discrepancy like I did, call the company and get it explained or, if you're right, corrected. You still have plenty of time right now to set things straight so that you don't have to explain any differences to an IRS examiner.
If you wait until April to check and find a problem then, you'll likely have to file for an extension while you wait for the corrected paperwork to be sent to you and copies to the IRS. And that means you have to keep dealing with your taxes for longer than you really wanted.
Follow the forms: Below are some of the common (and a few not-so-common) tax statements that have been showing up in mail boxes and what they tell you and the IRS.
W-2: Wages, tips and other compensation; allocated tips; advance Earned Income Tax Credit (EITC) payments; dependent care benefits; adoption benefits; employer contributions to an Archer Medical Savings Account (MSA) or a Health Savings Account (HSA)
W-2G: Gambling earnings
1098: Mortgage interest and loan points
1098-C: Charitable contributions of motor vehicles, boats and airplanes
1098-E: Student loan interest
1098-T: Qualified tuition and related expenses
1099-A: Acquisition or abandonment of secured property
1099-B: Earnings on stocks, bonds, other investments; also bartering income
1099-C: Canceled debt
1099-DIV: Dividends; qualified dividends; capital gains
1099-G: Unemployment compensation; state or local tax refunds, credits, offsets
1099-INT: Interest income; early withdrawal penalties; investment expenses; foreign tax paid; tax-exempt interest
1099-LTC: Long-term care and accelerated death benefits
1099-MISC: Rents, royalties and other income; nonemployee compensation; excess golden parachute payments
I guess ol' Bob Nardelli, former Home Depot CEO, will be getting one of these. Of course, I'm assuming that his excessive, at least to me, golden parachute payout was an excess one in the eyes of the IRS.
1099-OID: Original issue discount and other periodic interest; early withdrawal penalties; investment expenses
1099-PATR: Patronage dividends and other distributions from a cooperative; domestic production activities deduction
OK, maybe I spent too many years in Washington, D.C., but I see the word patronage and my mind's eye automatically envisions old-school politicians in smoke-filled rooms.
1099-Q: Qualified education program payments
1099-R: Distributions from IRAs, pensions, annuities, etc.
1099-S: Gross proceeds from real estate transactions
Hmmm. I've never gotten one of these in connection with any of the houses the hubby and I have sold.
1099-SA: Distributions from health savings accounts or medical savings accounts
Late-arriving forms: There are a few statements you might need for your tax records, but because of the intricacies of the financial arrangements they cover, these documents don't always arrive before the April filing deadline. They include --
5498: Contributions to any individual retirement accounts. Because you have until the tax-filing deadline to put money into these accounts, Form 5498s aren't due to taxpayers until May 31.
5498-ESA: Contributions to Coverdell Education Savings Accounts, formerly known as Education IRAs. The child named as account beneficiary should get a copy of this document by April 30.
Schedule K-1: Distributions from an estate, trust, partnership or an S corporation. Because of the complexity of many of these arrangements, account managers tend to send out K-1s later in the tax season, sometimes not until after the April filing deadline.
But since you need to know this K-1 income amount to file your return, consider filing Form 4868, Application for Automatic Extension of Time to File, to give you six more months to get all your tax statements in hand.
You also can read more about these forms in this story.