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"A Few Questions You Should Ask"

by Greg Mermel

Published in the "Money and Taxes" column in PerformInk on February 15, 2008

By now, all of your W-2 and 1099 forms for last year should have arrived. Payers are supposed to mail them all by January 31, and two weeks is ample time even allowing for last-minute mailing and Chicago’s dubious postal service. So all you need to do for your income taxes is add them up and pop the figures on the form – right?

Wrong.

The sheaf of papers in your hand can easily be incomplete, inaccurate, or both.

Should They Have Sent It?

Payers – particularly smaller companies – are often confused about preparing forms 1099-MISC for independent contractors. I’m not sure why. Granted, the rules are a bit more complex than those for employees and W-2s (“everybody gets one”), but they are not that bad. A 1099-MISC has to be issued whenever someone is paid $600 or more for services during the year. Except when the payment is to a corporation, when you don’t. Except if that corporation is a law firm, you do.

Few if any of you are lawyers, so we can ignore that exception to the exception.

Some of you are probably incorporated. If a payer sends a 1099-MISC to your corporation, there is no harm done. They just wasted some postage and stationery, and perhaps a few minutes running about in a mad tizzy trying to find your company’s tax identification number. Not your problem, in any case.

Otherwise, yes, they should have sent it if you made $600 or more from them.

Did They Send It?

If somebody says that “the check is in the mail,” your immediate response is, “yeah, right.” (Or something smuttier, to much the same effect.) You figure calling about a missing 1099 might get the same not-very-credible response.

You are correct. The payee copies of 1099s and W-2s are supposed to be mailed by January 31, but the copies that go to the federal government have an end-of-February deadline. Many payers (again, typically smaller ones) use this as a grace period and hope they can get both copies out by mid-February. This happens much more often with 1099-MISC forms than with W-2s, since W-2s are typically created as a by-product of preparing federal tax returns that must be filed by the end of January.

Then again, you might call and discover that the payer is gone. Poof. Out of business. Disappeared. Maybe wearing cement overshoes or sleeping with the fishes.

This doesn’t just happen with small, fly-by-night operations. As reported elsewhere in this issue of PerformInk, one of Hollywood’s largest talent payment companies, Axium International, abruptly shut down on January 9 and filed for bankruptcy. Its assets have been sold to one of its major competitors, but nobody seems to know when, or even if, W-2s will be issued.

Where Did They Send It?

These once-a-year forms are often generated from once-a-year software using last year’s data files. Your address may have been updated in all the other places in a payer’s office – but not in the tax forms software.

For actors, misaddressed forms more commonly involve W-2s than 1099s. The reason: residuals. These payments come to you through SAG or AFTRA, so the address on the checks does not matter. But the W-2s are mailed directly to you. Or to an address where you once lived. Or to an agent who once represented you. I’ve even seen them mailed to the hotel an actor used during location shooting, years earlier.

Add to this the random errors that occur during data entry, and the person on the other end of the phone may not be lying when he swears they mailed it. He just hasn’t a clue where.

Is It Right?

W-2s are rarely incorrect. The problems I have seen generally occur when a check has been voided and replaced, in which case the amount might be included once, twice or not at all.

Errors in 1099s, though, are common, especially if you have received expense reimbursements. The reported figure is supposed to include only the fee. Most payers understand that. Many are able to consistently do it right.

Year-end timing differences can also come into play, where a payer issues a check December 31. He will include it in that year’s 1099, even though you did not receive the money till January. (Or February, if he’s really gutsy about backdating checks.)

Is It Enough Information?

You are legally responsible for reporting all of your taxable income, and accuracy is your responsibility.

Those small fees under $600 can amount to a significant amount of money, so just adding up your 1099s will tend to underreport your income. Indeed, 1099s are almost irrelevant for tax preparation, except to make sure your income hasn’t been overreported and perhaps to cross-check your records.

Lost or missing W-2s can also be addressed, especially if you’re organized enough to keep the check stubs.

You should always keep the pay stubs, and not just for income tax reasons. You may need them when filing for unemployment, and find their cumulative tallies of union dues and other non-tax deductions useful.

If you never receive a W-2, the check stubs (or the final one if it has year-to-date information) contain all the information you need to complete a form 4852, “Substitute for Form W-2.” Staple that form along with photocopies of the stubs to your federal tax return just as you would attach a W-2, and send it in. States generally will either accept a copy of the federal 4852 (Illinois) or have a similar form of their own (California).

Were The Taxes Paid?

This question, fortunately, is not your problem. Failing businesses often fall behind on paying these taxes, so I was not surprised when the Los Angeles Times reported that Axium owes tens of millions of dollars to the IRS. But as far as the IRS and state tax authorities are concerned, you paid the taxes when the money was withheld from your paycheck; you can claim the withholding on your tax returns.

Free Offer

Every year during the income tax season, I offer free copies of my “Checklist of Potential Deductions...” for those in the arts. Just call my office, or send an email to checklist@gregmermel.com.

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