Boy, did the husband and I get screwed this year when tax season came along. Why? Because a CPA is only as good the information his or her clients provide, and knowing what you need is the first step. The documentation I get from the company or companies we work for might be only a small part of the picture.
That’s why I thought I’d ask Adi Rubin, an L.A.-based CPA and friend, a few questions so that next tax season doesn’t cause us a dry season.
Q: My husband is a staff writer with a not-so-ambitious freelancing side career. He earned $4,000 for one article last year, and $500 for another, both for different magazines. How do we account for this money? At what point do I need a 1099?
A: A 1099 is required when an individual or non-corporate entity earns $600 or more in a calendar year from an organization. If a writer works for multiple companies as an independent contractor and earns less than $600 from each of these companies he/she may not receive any 1099s.
Q: Do I really have to claim my earnings if I earn UNDER this amount?
A: Do you really? Yes. Taxpayers are required to report all income from all sources. Reporting requirements on the part of the person paying you don’t change the taxpayer’s responsibility to report their income. It’s a bit of an honor system when it comes to income that falls below the threshhold for the reporting of 1099s.
Q: How do I claim this money if I don’t get a 1099?
A: Taxpayers are taxed on all income earned regardless of whether or not the income is reported on a 1099. Self-employed individuals report their income on Schedule C, which is attached to your Form 1040, Individual Income Tax Return. The gross income reported on your Schedule C should include all income received. It is the individual’s responsibility to report their actual gross income – whether or not they have received 1099s to support it.
Q: So, if we didn’t get a 1099 on the piece that earned us $4,000, do we have to claim it? Or does the government never need to know about?
A: There could be many reasons you didn’t receive a 1099 for the $4,000:
Not having a 1099 to show the income you earned makes it more difficult for the IRS to track it down, but there are many ways that they can uncover it. It will save a lot of future headaches if you report all your income properly from the very beginning.
Taffy Brodesser-Akner, Director of Community Development