You don’t need to report the income from the 1099 if it’s not actually income. The IRS may send you a letter proposing an adjustment if the total of the 1099s they have for you exceeds the amount of income you reported, but that’s just a start of negotiating. All you have to do is explain to the IRS agent why the 1099 amount was not actually income to you, and that’s it. Ok, it’ll cost you a little bit of time, but that’s assuming they even bother to notice, and they only can possibly notice if absolutely all the rest of your income is on a 1099 as well.
Ok, but the question is - is it income? Well, what has happened is you had an involuntary conversion. If you bought something with a similar purpose with the money, then your basis in that new equipment is set equal to the basis of the old property (possibly 0), and you don’t have to calculate your gain or loss, but you don’t deduct the cost of the new equipment. If you just kept the money (or whatever portion of it wasn’t spent replacing it) and didn’t replace the equipment, you should report the casualty loss on Form 4864, calculating your gain on reimbursement, or loss if you had more basis than what you were reimbursed. If it was something that you didn’t capitalize and just expensed when you bought it, whether through Section 179 or because it was de minimis, then the reimbursement is income.
Note that whether this is taxable absolutely does not depend on being issued a 1099; the 1099 just makes the government know you received money from them. If you were audited and you had the reimbursement check deposited in a business account, they wouldn’t care whether you were issued a 1099 for it or not.
I certainly contacted my insurance company first, who said since the accident wasn’t my fault to try to work it out with the other party, and if I couldn’t do so to get back with them…the company whose vehicle hit me has actually been quite good about taking care of things.
It sounds like this more a matter of keeping their premiums down than true self insurance? - I mean, what if it was a more serious accident, with a totaled vehicle, medical bills, etc. with total costs that were tens of thousands of dollars rather than a couple of thousand? FedEx could pay that, I doubt this landscaping company could.
It might indeed be the case of what you have stated in terms them keeping their premiums down. For reference, landscaping insurance costs for this type of accident would be covered by commercial vehicle insurance which is $1500-3000 annually with a varied coverage limit according to this article. This might increase even further if they have gone through various accidents.
Also, have you considered the possibility that they may not have specific insurance (commercial vehicle insurance)? A lot of landscaping companies only opt in for general liability insurance. Some just go the BOP route (business owners insurance) which bundles all coverages into one type.
Take this how you will as there are a few reasons why they paid out of pocket, but if you ask me it has to do with them keeping their premiums low.
Absolutely unacceptable for your insurance company to even appear to discourage you from pursuing a covered loss under your own policy. Encouraging you to work with a private entity in an enterprise neither of you are familiar with is a huge disservice to everyone involved. You were basically told: we don’t have time for you, go out and only come back if you make a complete hash of it. And good luck getting an insurance company to pay for repairs they haven’t been able to inspect.
I want to point out that a company with a large enough fleet of vehicles doesn’t need back up from an insurance company for collision claims. I’m sure they have lots of general liability insurance to cover far more than vehicle accidents. But for collision claims they have no need to guarantee a profit for an insurance company.