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How failing to address 1099 issues can lead to additional costs and an audit

It's January and the official start of a new year also signals the start of the 2015 tax filing season. Within the next couple of months, individuals and business owners will receive important tax documents in the mail which are essential to figuring out one's taxes and filing an accurate tax return. Two of the most important tax documents are the W-2 and 1099 forms.

While most people are familiar with the IRS' W-2 form, some may be less familiar with the 1099 forms. There are different types of 1099 forms including those that relate to income earned via contract or freelance work, earned interest, dividend returns, tax refunds and pensions. With this tax document, a payer is required to mail out copies of the document they plan to file with the IRS by Jan. 31. The individual who was paid is then required to claim the income amount indicated on a 1099 form when filing his or her income tax return.

Upon receiving a copy of a 1099 form, it's wise to double check everything to ensure for accuracy. In the event that you believe a payer made a mistake, it's important to contact the individual or company as soon as possible to correct the mistake before the form is officially filed with the IRS. If an error isn't caught in time and an incorrect 1099 document is filed with the IRS, it can be a headache to try to sort out and correct.

In cases where an individual should, but does not receive a 1099 form, he or she should still claim the income on a tax return. It's not, however, advisable to request a 1099 form if you don't receive one as doing so could inadvertently result in two separate forms being filed with the IRS and the agency assuming that an individual was paid and owns taxes on both separate 1099s.

Individuals who have questions or concerns about their 1099 forms should consult with a tax professional. In cases where an individual fails to account for income earned via a 1099, he or she will most likely face an audit in which case it's a good idea to contact a tax attorney.

Source: Forbes, "IRS Forms 1099 Are Coming, The Most Important Tax Form Of All," Robert W. Wood, Jan. 20, 2016

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