Last year I did some work for a venture capital-backed company in Houston, about four or five hours away from my home in the Dallas-Fort Worth metroplex.
I would travel and stay in Houston on the weekdays and come back home on weekends.
I was to be reimbursed all my travel expenses, including gas, hotel, meals, and incidental company purchases, but I paid for these expenses out of pocket.
Two months into the project, we were informed that investors had backed out, and funding was never secured. Ouch. I was out a couple thousand in actual dollars spent, not to mention several thousand more for non-payment of mileage, company purchases, and wages payable.
The only money I received was one check for $1,000 to help offset some of the expenses I had already incurred.
A 1099 Misc Form?
Much to my surprise, I received a 1099-Misc Form from the Houston company last month in the mail. Setting aside “employee vs. independent contractor” issues, I was first curious why I received a 1099 Form, since I received no compensation but a $1,000 reimbursement check.
I was even more shocked when the amount listed on the 1099 form was six hundred and some-odd dollars and change. Great — not only did I have an unexpected 1099 form, but the amount was totally random and didn’t even match the dollar amount I did receive!
Options for an Incorrect 1099-Misc Form
I was at a loss as to what to do with my situation. So after a bit of searching, here’s a few options I came up with:
1. If your 1099 form includes expenses and income
A bankrate.com article suggests that sometimes a 1099 issuer includes payment for items that you don’t consider income, such as reimbursement for expenses.
For example, you were paid $10,000 to remodel a kitchen, and were reimbursed $5,000 for materials. When the 1099 arrives, the amount is for the entire $15,000, rather than the $10,000 you received as actual income.
The simple solution is to report $10,000 as income, and take all the deductions that you are entitled, which in this case, would be at least the $5,000 in materials. With this method, all will even out, and no correction is needed.
2. If your 1099 form is plain wrong
If you cannot get the issuer to amend a completely wrong 1099, what do you do? Well, I called the IRS help line: (800) 829-1040. The representative told me I can go through the same process as above (claim income & deduct expenses), and include a note explaining why the particular 1099 form was wrong, and what the correct figures were for income and deductions.
Since my former employer refuses to cooperate (after at least three attempts to request it changed), my best option is to go ahead and claim $1,000 of income and offset the rest as expenses, while leaving a detailed explanation as to why there is a discrepancy.
Now I’m back to the W-2 life: working close to home, avoiding long-term travel, and actually being paid for work completed (what a concept!). Here’s hoping for an easier tax season next year!
This Tuesday Tax Tip comes from my friend Jason, who blogs at MyMoneyMinute.Com: Personal Finance & all that implies… in minutes a day! I encourage you to check out his companion post on incorrect W-2 Forms.