It happened again. For the second straight year, I received a grossly inaccurate 1099 tax form from one of my contractors. Last year, an incorrect decimal point meant that instead of reporting a modest $19,000 in freelance income from one of my clients, I was facing the ludicrous prospect of paying taxes on income of $1.9 million. Although the inadvertent “boost” to my income was flattering – who wouldn’t want to be a millionaire? – there was no question that I would alert my contractor to the problem.
This year’s incorrect 1099 is a different story, though. Instead of severely over-reporting my income, this year a (completely different) contractor grossly under-reported what they’d paid me in 2012. My records showed I’d invoiced the company for about $8800 worth of services, under two different job titles. However, when the company’s accountant put my 1099 together, they only listed my income for one of those two positions. The result was an income of just $3600 listed in Box 7 of my 1099 instead of the full amount.
Why I Almost Didn’t Report The Error
To be completely honest, my first thought was not to report the error to my contractor. After all, they had all the same information I did, and could have come up with the right number. I knew that if I got the mistake fixed, it would mean the difference between a very small refund on my 2012 tax returns and owing the government a couple hundred bucks.
Why I Did Report The Error
Ultimately, though, honesty won out. Honesty and, I must had, my own selfish motives.
My father is a CPA, and has done taxes professionally for my entire life. He’s always taught me that honesty is the best policy, especially when it comes to the IRS. When it came down to it, I wasn’t going to risk what equated to lying on my tax returns in order to save a couple hundred bucks.
My other motive had to do with my family’s financial situation. We’re planning on making a big move this year, and when we do, we’ll have to apply for a new mortgage. As someone who is self-employed, I know that lenders will only count verifiable income when considering my loan application. When I did the math, I realized that the missing $5200 on that erroneous 1099 would take $37,000 away from what we could qualify for on a home loan. That’s a big difference.
Getting The Problem Solved
As I learned last year, getting a mistake on a 1099 fixed is pretty simple. The first step is contacting the finance department of the company with which you’re working and alerting them of the problem. Next, be prepared to show them exactly how much you made. I was able to send them all my invoices for 2012, and pinpoint the exact cause for the discrepancy: the exclusion of the payments I’d received for one of the two jobs I’d done for them. The company accountant looked over everything and let me know my numbers checked out; they emailed me a copy of the corrected 1099 within 24 hours.
Have you ever had an error on one of your tax forms, like a 1099 or a W-2? Did you bother to fix it? Why or why not?