Tax Law (Questions About Taxes)/Double 1099 Form - one from a Company & another from CC Merchant Svcs provider
QUESTION: Hi,my business provide Marketing and Consulting Svcs to small businesses. Most of my clients do their payment to me via credit card and for all the credit card run I received a 1099 from the Credit Card Merchant Service company.
At the same time one of my client that did all their payment via credit card and never issue a check to my company also issued a 1099 and the income amount that they reported paid to me is already included in the 1099 that the Credit Card company pay to me.
With that said the same amount of income has been reported twice.
When I am going to do my Tax Filing (I am the one that prepare the forms) should I not include the data from the 1099 from my client and ask them to make a 1099 correction or what I should do?
I'm interested to be taxed twice on the same income. Any suggestion on this one will be appreciated.
ANSWER: Let me first congratulate you:
1. You are finding out BEFORE the IRS raises the question
2. You are doing your own taxes, that can avoid a lot of problems later. Many people surrender the understanding of taxation to someone else that may not understand your business, and certainly can't make timely decisions for the business that would result in lower taxes or less frustration.
While you will experience less problems we can't hope that you will experience NO problems. And this one is one of those problems.
You should include ALL your 1099's. Since the IRS uses the 1099 as a lead sheet for audits -- failure to account for all 1099's would "appear" to be a failure to declare all income.
You will need to include enough notations and information to show they double entry.
Doing that properly may not eliminate the IRS asking the question through a "letter of inquiry" or possibly an audit. However, once reviewed it will show that your intent was to fully comply and address the issue at the start.
So really you are just preparing for the argument.
A line item note on the schedule of 1099's and correction to the actual amounts is a start. Attaching an explanation page is better, showing the math, and possibly calling out that particular clients account and values to show the duplication.
Again this isn't a guarantee that you won't have to address it later, it simply means that if you have to address it, you can show that you were proactive in trying to clarify and not appearing to "hope they don't notice".
How is your business structured? Is it a sole prop, llc, real corporation? That does have some bearing on how you are treated.
---------- FOLLOW-UP ----------
QUESTION: Hello Richard,
Thanks for your answer.
To answer your question - my business for 2013 was structured as Sole Prop.
In 2014 I formed an S-Corp.
Concerning the issue of the double 1099 - still what is no clear to me if I do need to contact my client that issue incorrectly a 1099 when they in reality did a payment to me via credit card nor via check.
Unless I'm mistaken - my understanding is that if you pay some 3rd party person via check you issue a 1099 but if you are paying somebody via Credit Card - they can simply deduct the expense by use of the Invoice. and payment to the credit card -- Am I incorrect?
You can contact them. You can ask them to reissue.
But, looking at accounting in general. Expenses/outgo are all listed on the books together. They are not separated by method of payment.
Probably the accountant, completed all the 1099s and did so automatically. For the business, method of payment does not matter, check, cash, credit card, debit card. Their books show outgo, and they need to declare that outgo and attribute it somewhere.
Yes, they could theoretically attribute it to the Credit card company. But that is not really a better attribution.
The IRS makes businesses jump through hoops for no other reason than their own internal whims. Their policies have never had to withstand reasonable scrutiny.
So we adapt as business owners. We realize that because of the inanity of these policies, we can never truly expect the system to work, but that if we don't protect ourselves and be ever vigilant, we can be wiped out. In your case, by an audit, because the IRS requirements create chasms between the truth and the paperwork.