Taxpayer asks:

Hi Kelly!

I’m so glad to have found your site – what a great service for all of us! My question is in regards to the 1099-MISC form. I am a small business owner and received a 1099 form for a December 2007 sale however the company did not pay until January 2008. Do I report that as income for 2007 (even though I did not receive any funds until 2008?).

Thanks so much for your help – going to be checking out your site all the time now!!

Taxgirl says:

Thanks for the nice words, I’m glad that you enjoy my site.

As to your question, it’s tricky.

You should only report income actually received (or constructively received) in 2007 on your 2007 form 1040. It’s tricky because I’m guessing the company that issued the 1099-MISC wanted to take advantage of the deduction in 2007. If they actually paid you in 2008, however, the 1099-MISC is just plain wrong.

My advice to you depends on two things – how much the payment is and what kind of relationship you want to have with the company that issued the payment.

If the amount is small enough, I’d let it go and report it on the 2007 return. This way, everybody’s happy.

However, if it’s a significant amount, you’d want to take advantage of the tax deferral. I would contact the company that issued the 1099-MISC and, in the nicest way possible, ask them to issued a correct 1099-MISC.

If the payer will issue a new one, problem solved. If the payer refuses, then you should notify the IRS. Call 1-800-829-1040. Have your name, address, Social Security Number, and payment information and the name, address, and phone number of the payer handy when you call.

An alternative that I’ve heard bandied about when this happens is just to file anyway as you believe to be true. The problem with filing with the old 1099-MISC but not reporting until 2008 would be that the IRS will not have the correct information and will assume that you failed to report income in 2007. That, to me, just creates more problems than it solves.

I hope that helps. Thanks for reading!

Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
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Kelly Erb is a tax attorney, tax writer and podcaster.

Comments

  1. My company sent a 1099 to an employee for a bonus check in error. The 1096 has been sent to the IRS already so they have a record of the 1099 for the employee also. How can I correct this error?

    Thank you-

    Caroline

  2. I run into a somwhat similar situation frequently where both sides are the table are seemingly right. A simplistic example: say my corporate tenant issues a rent check in late December for January rent (I receive it in January as well). We’re both on a cash basis. They post their rent expense in their books for Year “x”, while I, of course, will post that January income in my books for Year “x+1”. Their 1099 won’t reconcile with my books. This kind of scenario must happen all the time. Is there a standard rule-of-thumb?

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