If you're self-employed or perform contract services, you
may receive 1099s from your customers at the end of the year. 1099-MISC forms
show income you receive for services you provide, but you may not receive a
1099 from every customer. For example, if a customer paid you less than $600
for work, he is not required to send you a 1099. Because of this, it is common
for self-employed individuals to have discrepancies between invoices and the
amounts reported on 1099 forms.
1099 Reported to IRS
When you receive a 1099 from your customer, your customer
furnishes the same information to the IRS. This means the IRS has your
self-employment income information in their system and expects to see a
reflection of the 1099 income on your tax return.
Receipts Total More than 1099
If your gross receipts total more that your 1099 amounts,
report the amount of your gross receipts as income. Because you may not receive
1099s for all the income you earn as a self-employed individual, your gross
receipt amount is probably more accurate. Many self-employed taxpayers use a
cash basis method for accounting purposes. This means you report income and
expenses in the year you actually receive the money or pay the bill. If you
operate using the cash basis method, make sure you exclude unpaid invoices from
your gross receipt calculation before you report the income.
Receipt Total Less Than 1099
If your gross receipt total is less than the amount reported
on your 1099, you'll need to determine which figure is accurate. If you earn
less than the amount shown on your 1099s, you may have an erroneous 1099. For
example, if you charge a customer $700 for a job and receive a 1099 from the
customer that shows you received $7,000 for the job, you have an erroneous
1099. If your 1099 forms are accurate, go through your bank statements and
match your self-employment income deposits to your invoices. Make sure you
recorded all your receipts correctly. Since the IRS retains all 1099
information received under your Social Security number, you should attach a
statement to your tax return when you receive erroneous 1099 information.
Reporting 1099 Income
Most 1099-MISC income you receive as a self-employed
individual is reported on IRS Schedule C, Profit or Loss from Business. If you
have business income in addition to your 1099 income, total all amounts and
report the income on line 1 of Schedule C.
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