IRS Sees Red in Unreported Income

A question posed by a taxpayer in the San Francisco Chronicle posed an interesting situation, especially for small business entrepreneurs: what happens when 1099 income from independent contracting does not match reported income on a taxpayer's 1040?

Two scenarios exist. First, taxpayers may not be reporting income for payments received in December because they want to defer the income to the new year. However, companies filing 1099s will report the income during the calendar year regardless of when the taxpayer deposits the check.

Second, some companies are negligent in issuing 1099s for a variety of reasons. Whether a taxpayer receives a 1099 or not, he or she should still report income on the 1040 despite the fact that a 1099 is not present to back up the return.

The result of any unreported or mis-reported income presents a red flag for the IRS, which could lead to an audit. Tax preparers and advisors should counsel their clients that they should adhere to tax rules of file appropriately.

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