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Why do companies report 1099 income to the IRS. Is it strictly a matter of compliance? Or does the fact they pay money to a contractor for services give them tax advantage they can write off to lower there own taxes?
#2
Contractors are a business expense plus it's unlawful to pay someone more than $600 and not report it
So is speeding, or not coming to a complete stop at a stop sign, in every given day, you would be hard pressed to find someone that obeys EVERY law every day.
Ok, so let's say I have sloppy accounting for my company and didn't report any of the 1099 events that would normally generate a 1099 form. How could the IRS find out, or is the IRS relying on a companies honestly?
So is speeding, or not coming to a complete stop at a stop sign, in every given day, you would be hard pressed to find someone that obeys EVERY law every day.
Ok, so let's say I have sloppy accounting for my company and didn't report any of the 1099 events that would normally generate a 1099 form. How could the IRS find out, or is the IRS relying on a companies honestly?
If you pay someone "under the table" then you cannot declare the business expense for the contractors' fees. But it's unlikely you will be caught unless the individual contractor declares the income or someone reports you to the IRS
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Quote:
Originally Posted by TechGromit
So is speeding, or not coming to a complete stop at a stop sign, in every given day, you would be hard pressed to find someone that obeys EVERY law every day.
Ok, so let's say I have sloppy accounting for my company and didn't report any of the 1099 events that would normally generate a 1099 form. How could the IRS find out, or is the IRS relying on a companies honestly?
They do not rely on honesty. Yes, you could get lucky, but if you neglect to file the 1099 and the person/company you paid is audited they will show you as a customer and the IRS will follow up with you.
Most bigger companies now require that a 1099 be on file for any supplier of products and services regardless of the amount, and send them to the IRS automatically even if less than $600. What does pop-up on the IRS radar immediately is when the buyer files the 1099 and the supplier doesn't show it on their tax return.
Why do companies report 1099 income to the IRS. Is it strictly a matter of compliance? Or does the fact they pay money to a contractor for services give them tax advantage they can write off to lower there own taxes?
Last year I paid subcontractors almost $200,000. If I didn't give them 1099s, *I* would be paying taxes on that $200,000 instead of them. Plus, like someone already said, it's against the law to not report it if you pay someone over $600 for the year.
So is speeding, or not coming to a complete stop at a stop sign, in every given day, you would be hard pressed to find someone that obeys EVERY law every day.
Ok, so let's say I have sloppy accounting for my company and didn't report any of the 1099 events that would normally generate a 1099 form. How could the IRS find out, or is the IRS relying on a companies honestly?
I'd said if you don't shape up your accounting you are going to be audited and you are going to be sorry. I'm frankly surprised at your attitude. If you think you can not report 1099 income and get away with it, you are sadly mistaken.
I'd said if you don't shape up your accounting you are going to be audited and you are going to be sorry. I'm frankly surprised at your attitude. If you think you can not report 1099 income and get away with it, you are sadly mistaken.
But if there's no paper trail it would be difficult for the IRS to audit you. Take for example service people who work for cash or accept personal checks and deposit them into their personal checking accounts. If the customers don't report the payment, which generally they don't, and your deposits don't routinely exceed $10k what would flag the audit?
And while ethically I too have a problem with it happening, I'm certain people get away with not reporting income all the time. There's just too much information pouring into the Federal and Statue revenue systems, too many moving pieces for the majority of those breaking the rules to be caught with any consistency. Thus the reason they flog the high profile tax deadbeats publicly, to scare the smaller and less significant people into thinking they're next.
I don't think the OP is seriously mistaken if he's considering trying to get away with it, I think he's trying to figure out if there's an angle from which to take a calculated risk. It's foolish to do so because the threat of detection and prosecution would likely be suffocating, but everyone is free to roll their own dice.
...so let's say I have sloppy accounting for my company and didn't report any of the 1099
(expense) events that would normally (that my company) generate a 1099 form
(so I can deduct the otherwise common operating expense)...
Unless you ALSO have a pile of CASH from income that you ALSO aren't reporting...
it will come back to bite you in the butt.
That might be an audit next year... it might be a lawsuit 3 years from now.
It's not impossible to get away with these once VERY common practices...
but it's a lot harder than ever before and getting harder every year.
But if there's no paper trail it would be difficult for the IRS to audit you. Take for example service people who work for cash or accept personal checks and deposit them into their personal checking accounts. If the customers don't report the payment, which generally they don't, and your deposits don't routinely exceed $10k what would flag the audit?
And while ethically I too have a problem with it happening, I'm certain people get away with not reporting income all the time. There's just too much information pouring into the Federal and Statue revenue systems, too many moving pieces for the majority of those breaking the rules to be caught with any consistency. Thus the reason they flog the high profile tax deadbeats publicly, to scare the smaller and less significant people into thinking they're next.
I don't think the OP is seriously mistaken if he's considering trying to get away with it, I think he's trying to figure out if there's an angle from which to take a calculated risk. It's foolish to do so because the threat of detection and prosecution would likely be suffocating, but everyone is free to roll their own dice.
Well it's the law and I think he is seriously mistaken. Personally, I've been in business for myself for 23 years and have always been on the good side of the IRS. But I have friends who have not, and their lives are living hells as a result. It's absolutely worth it to issue the 1099s, because the last thing you want to be is the guy the IRS audits every few years as a matter of course.
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