Tax Question - Independent Contractor

Factual Questions
1

Ok. I do consulting work on the side. Usually I send a bill, then I get paid (they send me a check).

  1. Are companies supposed to send me a 1099-MISC for the amount paid to me?

  2. I imagine since I send them a bill, they will use it as a business expense (using my bill as the receipt), rather than an employee payment. This means I won’t get a 1099-MISC from them. How do I report it then? Do I just put an amount on the Schedule C? What kind of documentation must I have to support this income?

  3. Finally, do I really have to report it if I don’t get a 1099?

The IRS site keeps mentioning 1099-MISC and Schedule C for income for Independent Contractors, but it doesn’t really explain my questions (except #3).

2

If you operate as an unincorporated entity (I assume that you do not have a corporation set up for your consulting) than your clients must send you a 1099-misc if total payments to you during the year were $600 or more.

Sending them a bill does not excuse them from sending you a 1099. If they don’t send you one, your invoice and your cash receipts records will be adequate for your tax purposes.

You are required to report even if you don’t receive a 1099. The first thing the IRS will look at if you ever get audited are your cash receipts. If you are being paid by check, and not actively trying to hide income, they will have a pretty good trail of what you have earned.

3

barker pretty much covered it.

As to your question as to how to report it, put it on your schedule C just as if you had received a 1099.

You might still get a 1099. 1099s should have been mailed out by the last day of January, but there is nothing stopping a company from mailing them out late.

4

Umm… cash receipts? I have copies of all the invoices though. I’ll make sure to file those away.

5

Yeah those Cash Receipts.

This could be as simple as a copy of your bank statement. If you cash the checks instead of depositing, then your invoices will suffice.

It could also be something as simple as a ledger that shows when and how much you invoiced someone and when payment was received.

6

Zumba’s right. I just received two 1099s in the mail today, and have to send out one myself to an indie contractor we hired. (Technically, it was supposed to have been delivered by Jan. 31…but it’s my business partner’s sister.)

7

Well I just write on the invoice when I got the check, then I go deposit it in my personal checking account. I suppose that’s ok.

Thanks everyone.

8

Depending on how much on the side consulting you do, you might be opening yourself to a penalty. Obviously the IRS does not mind you giving them too much money but they get a little bent out of shape if you do not withhold enough during the year.

According to IRS Publication 505 “Who must pay estimated tax. You will not be liable for the penalty for failure to pay estimated income tax if the total tax shown on your return minus the amount you paid through withholding… is less than $1,000.”

You still may have missed the bullet because if you had 90% or greater of your total tax liability withheld, you will not be penalized.

Take a look at Publication 505 from their web site http://www.irs.gov if you think you might fall into this situation.

Regards