Jessie Stake and Terri Adams were both surprised by the tax documents they received from the multi-level marketing company they worked with. The numbers on the 1099ks didn't match their own records: Stake's records showed she sold $5000 less than her tax paperwork showed, while Adams' was off by over $20,000.
This can have huge tax consequences, as the IRS will wonder what happened to all that money. You don't want to pay taxes on money you never received.
Both contacted their company headquarters with mixed results. The company representative told Stake that the tax forms were right, and she was wrong. Adams got a call back from accounting saying they would provide her with a line by line breakdown of how they arrived at the numbers. As of this writing, she hasn't gotten the numbers yet.
What do you do when tax forms that are flat out wrong? It's important that you get it correct and fast. Companies are required to have tax documents finished and available by January 31, but they don't have to report the information to the IRS until February 28, so there's time for corrections. Here's what you do.
Contact the Company
Whether or you're an employee with an incorrect W-2, or a contractor with a funny looking 1099, or received a 1099k from PayPal or a credit card company that doesn't look right, start by contacting the company.
Be prepared with your numbers. You should have bank statements and invoices that you can reconcile to their records. You may, in fact, be the one who made the mistake. Sometimes those are innocent mistakes--like a company cuts you a check in December, so they count it as 2017 income, but you don't cash it until January, so you are considering 2018 income. That type of thing should be easily resolved.
Some of them are sloppiness on your part. Did you really record all your income? Did your receive direct deposit for most of the year, but a live check back in May that you forgot about? Errors happen on both sides.
If you still can't reconcile their books and your books that is where the big problems come in. What do you do?
I spoke with Steve Schubert, a Forensic Accountant who specializes in white-collar crime for his advice on what you do if contacting the company doesn't work. Here's what he said to do.
Begin Filing Complaints
Because this will negatively affect your taxes, you can't just shrug your shoulders and think it will be fine if you just report your numbers on everything. Schubert says go to your State Consumer Protection office and the State Attorney General's office and get it on record that the company is filing false tax documents.
These government offices should then send letters to the business in question and perhaps perform an audit.
The IRS is slow, Schubert says, and it can often take two to three years before they identify problems with your tax returns when your numbers don't match up with the numbers provided by the company. Even if you successfully get the company to change their 1099 or other documents, keep the original one and the new one, which should be marked "corrected." You may have to produce both to prove that they are both covering the same income.
Get Professional Tax Help
When you start selling and get a variety of tax documents from a variety of sources, and there are questions about their accuracy, you don't want to sit down with pen and tax forms and fill them out yourself. You want a professional who knows what the consequences of inaccurate documents are, and who can help you through, what Schubert says, is an inevitable audit.
Innocent mistakes happen, but Schubert says that padding 1099s and other tax documents are ways that unethical organizations hide money. Companies that do this are trying to show increased expenses to reduce their taxable income. Have you noticed any other behavior from the corporate side that indicates corruption?
It may be an innocent error, but it may be a sign of criminal activity, so keep your eyes open and consider severing your relationship with this organization.
Image credit: Getty Images
Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa works with small business owners and entrepreneurs to assist them with financial management and creating organized systems and procedures. She specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.
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