1099 Overpayment question

Tater

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Hi Guys,

New one for me. I cleaned about 6 daycares in Nov Dec and the company sent me a 1099 as they should. However they paid me for only one location in 2018, on a check that was dated in 2018.

The rest of the payments came in January with checks dated in Jan 2019.

The issue is I just received my 1099 from them and they reported paying me ALL of what was due on the 2018 1099.

So for example, I cleaned 6 locations. I was paid for location 1 in December like 800.00 (45 day policy for payment) IMO the other (5 x 800) 4000.00 income should be counted in 2019, not 2018 as I received the checks in 2019.

Anyone else have a similar issue???
Thanks
 

wandwizard

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I'd have to ask my accountant to be sure, but I always count the income in the year I actually earned it even if the check comes in the next year. If they already sent you the 1099 I imagine you will have to go ahead and pay your taxes on it this year and get it over with. That's exactly what I'd do anyway. I'm pretty sure my accountant would advise the same.
 

sbsscn

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Yes, I have run into this,

You should contact them and straighten it out, or else there it will be off,
and you need it to be correct to avoid a potential audit ( which may not happen but its a discrepancy)

If the payment was received in this year then it has to be reflected for the 2019 tax year not 2018 other wise youll be paying taxes for the year 2019 and not 2018. Give them a call and have them revise it keep the books clear. you could let it go but I wouldnt.
 

brian3180

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Depends if you do your accounting as "cash" or "accrual". Like sales tax for example. You are responsible for the sales tax liability when you are done with the job on accrual. On a cash basis you are liable for the tax when you get paid(when you receive payment) for the job. To make it easy for the account that gave you the 1099 you would be better off claiming the 1099 for 2018 unless you want to risk irritating them by having them reissue a new 1099. Let them know if you do your taxes on an accrual or cash basis. This is the simple explanation.
 

sbsscn

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I think since he was written a check that he received payment for months of last year he needs to be sure if he wants to pay taxes for money he did receive instead of money he did Not receive last year. Id ask them to clear it up, but also consult a CPA or tax prepare people
 

PistolPete

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I'm not sure it really matters. They are required by the IRS to issue a 1099.
You pay taxes on the income you earned in that year.
I don't think it matters what the 1099 says from your perspective.
 

Tater

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Cash method...
which is why I think its an issue. It matters because this little bit of income puts me in a new higher tax bracket! 22% vs 24. I just dont see how a payment from a customer dated on a check in 2019 can be part of 2018 taxes. Thanks for input!
 
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Kevin Dumas

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They are wrong. Have them send a corrected 1099.
You did not receive the income in 2018 so it should not be on that statement nor should you have to pay taxes on it till this year.
 
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brian3180

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Cash method...
which is why I think its an issue. It matters because this little bit of income puts me in a new higher tax bracket! 22% vs 24. I just dont see how a payment from a customer dated on a check in 2019 can be part of 2018 taxes. Thanks for input!
Let them know you do your taxes the cash method and would need a new 1099.
 

wandwizard

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Cash method...
which is why I think its an issue. It matters because this little bit of income puts me in a new higher tax bracket! 22% vs 24. I just dont see how a payment from a customer dated on a check in 2019 can be part of 2018 taxes. Thanks for input!
Once @brian3180 brought the cash or accrual up I remembered reading that several times in the past and discussing it with my accountant. Pretty sure he's right. I've always dealt on the cash basis accounting. I gave up the headache of doing my own taxes years ago although I do keep all my own records for my accountant. I just turn that into him and let him deal with it cause I HATE taxes! I can also call him up if I ever have a question like this and he will give me the answer over the phone.
 

sbsscn

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Cash method...
which is why I think its an issue. It matters because this little bit of income puts me in a new higher tax bracket! 22% vs 24. I just dont see how a payment from a customer dated on a check in 2019 can be part of 2018 taxes. Thanks for input!
I agree, you did the work BUT you did not get paid for the work in 2018, therefore you should not have to pay for taxes on them for the year 2018. If you let this go then you will have to pay for the taxes in the 2019 year.

have them straighten this out. The IRS does pay attention and if they submit the 1099 and they do audit you then it will come out in discovery of the discrepancy and the IRS can issue fines. It can be seen really bad by them since You left it alone and did not correct it.
 
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PistolPete

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I agree, you did the work BUT you did not get paid for the work in 2018, therefore you should not have to pay for taxes on them for the year 2018. If you let this go then you will have to pay for the taxes in the 2019 year.

have them straighten this out. The IRS does pay attention and if they submit the 1099 and they do audit you then it will come out in discovery of the discrepancy and the IRS can issue fines. It can be seen really bad by them since You left it alone and did not correct it.
I think an accountant needs to answer this.
My understanding is that the 1099 is irrelevant to you.
You pay taxes on your earned income.
I would see if they can correct it but you cannot be penalized for not paying taxes on money you didn't receive.
My accountant has never asked to reconcile a 1099 against the income from that one customer.
P&L and balance sheet tells the story.
 
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wandwizard

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I think an accountant needs to answer this.
My understanding is that the 1099 is irrelevant to you.
You pay taxes on your earned income.
I would see if they can correct it but you cannot be penalized for not paying taxes on money you didn't receive.
My accountant has never asked to reconcile a 1099 against the income from that one customer.
P&L and balance sheet tells the story.
When I turn in my income and expense reports every year I just give my accountant my 1099's but I tell him that my 1099 income is included in that total. Once I hand everything in I just wait a few days for the verdict. I've always accepted the 1099's as is even if some of it wound up getting paid in the current year which I'm sure has happened at least a few times. Btw, at least last year I made more off my accountant than he made off of me. Almost enough for the last 2 years of taxes.

This is a brief, but pretty good article on cash or accrual accounting methods. It does mention the very problem that started this thread. https://www.entrepreneur.com/encyclopedia/accrual-accounting.

Here's a brief video that exactly explains the difference too. I guess according to this I'm actually on the accrual method, not cash. Cash basis accounting allows you not to be taxed until you actually receive the income.
 

Scott W

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There are two basic accounting systems.

One is based on accrual, that is when did you earn the money or when did you incur an expense. This is considered a more accurate reflection of how your business is actually doing. I suspect that this company that sent you the 1099 ay have been operating on accrual. They record the expense and payment in the month and year it was incurred rather than when it was paid. That is perfectly fine.

You do accounting based on when you had receipt of the money and when you paid expenses. As long as you are consistent in using the same system for receipts as you do for collection and the same system year after year, IRS will be OK with that. (They do require accrual accounting for most C corporations, but I am assuming you are not set up as a corporation.)
 
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longkenn

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Yes, I have run into this,

You should contact them and straighten it out, or else there it will be off,
and you need it to be correct to avoid a potential audit ( which may not happen but its a discrepancy)

If the payment was received in this year then it has to be reflected for the 2019 tax year not 2018 other wise youll be paying taxes for the year 2019 and not 2018. Give them a call and have them revise it keep the books clear. you could let it go but I wouldnt.
If they had the checks postmarked by December 31, then they would be right in including it in the 2018 income. You should count it in 2018 if that is the case. If, however, they mailed it January 1 or later then it would go in 2019.

And Scott W is correct in what he said about accrual accounting.
 
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