Before we start it is important to note that to prepare and print 1099s form is only find in QuickBooks Online Plus, it is not available in Simple Start and essentials versions. If you want detail information about this please Contact QuickBooks Online Support.
The main reason someone receives 1099 is as a result of they performed contracted work or are presently freelance. Since you’re tracking your financial gain singly and not through an employer’s payroll software, lots of errors will happen.
One of the main reason for making an error with 1099 income may be a lack of organization which might lead to back taxes and penalty fees.
Related article: 1099 E-File: QuickBooks Desktop setup
Common Mistakes Made on 1099s form
Now we will tell you six most common mistakes that many people create on the 1099s form.
1. Misunderstanding Form 1099
1099s have many different numbers, and each has specific tax-reporting requirements. For example, take the form 1099-K, that is just sent to you if you create over $20,000 and receive over two hundred payments. Most people think this means they don’t have to pay taxes unless they make over $20,000, which is totally wrong!
For users who are new to 1099 work, make sure you understand what 1099s form is and the implications of it.
2. Not Writing Off All Business Expenses
You get way more liberality in what qualifies as a business expense, as a contractor. For example, as an employee, you don’t want to write off your commuting costs. But if you’re a contractor, any commutes to client offices are considered business mileage.
As a contractor, writing off all your business is the easiest way to save money.
Related article: 1099 E-File: Common issues and their troubleshooting
3. Not Keeping Adequate Records
Writing off your business expenses is a good job, but it will all be for nothing if you haven’t kept adequate records. The IRS needs you to stay proof of all business receipts, mileage and also the prefer to prove that the transactions really happened.
If you don’t have proof of your receipts, they may refuse the expense and you’ll get on the hook for back taxes and penalties.
4. Not Paying Quarterly Taxes
In general, if you expect to owe over $1,000 in taxes for the year, you have to pay quarterly taxes. Why? For example:- The government’s financial gain comes from taxes. What would you be doing if your purchases only paid you once annually in April?
Related article: QuickBooks 1099 Wizard
5. Writing Off Personal Expenses
Some employees individuals try to write off the entire expense as a business expense. For example: If you use your cell phone for both personal and business use, you can’t write off personal bill; you can only write off the business bill.
So how do you write off this expense, you can only write off the business portion.
6. Counting Expenses More Than Once
Many self-employed individuals use the Standard Mileage Rate to write off their mileage, but then also write off individual gas or repair receipts. You must select only 1 technique of deducting car expenses; otherwise, you’re double-counting the expense.
Tips to Avoid an Audit
If you avoid these above mistakes, you could still be an audit target. The truth is that the IRS uses applied mathematics formulas to pick out people from all teams, that ensures that everybody contains a probability of being chosen. It’s their method of keeping people honest.
You can decrease your chances of an audit by taking some steps. Now here are 4 tips to avoid an audit.
1. Ensure Your Reported Income Matches Any Tax Documents
As a contractor, you receive a Form 1099-MISC but as an employee, you receive a Form W-2 at the end of the year. Both copies are sent to the IRS so they also know how much you’ve made. Their system will automatically pick up any mismatches, which will increase your chance of an audit.
If the document you receive doesn’t match the amount you were paid out:
If there is really a mistake, then contact the company as soon as possible to solve the issue.
2. Carefully Document Any Commonly Audited Expenses
For contractors, a few common areas are:
- Car expenses. Before writing off your all mileage for business purpose, you properly logged in a logbook.
- Home office expenses. The home office should be your first place of business and used frequently and completely for work.
- Meal expenses.
3. If You Have a Business Loss, Make Sure It’s Not a Hobby
If you keep a business loss for three out of five consecutive years, the IRS might come in and claim you’re following a hobby and not really running a business. You will need to prove that you actually have the meaning to make a profit and clarify reasons.
4. Make Sure You’re Living Within Your Means
The IRS normally compares your income to others in the same situations. If you only claim $5,000 in income but work in an industry that typically makes a lot of money, they’ll become doubtful and increase your chances of an audit.
Use these tips to paying fewer taxes, you’ll be able to neat clear of common tax mistakes and avoid being audited unnecessarily. I hope you will clearly understand these steps. If you have any doubt you can Contact QuickBooks Enterprise Support “+1 855 441 4417”.