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How to Report Cash Income Without 1099

How to Report Cash Income Without 1099
Ines Zemelman, EA
23 September 2022

When you work for someone else, your employer reports your earnings on your behalf. When you work for yourself, however, it is your obligation to declare your own earnings. 

However, when you do not receive 1099 from one or more of your clients, this process can be difficult. Even if you do not receive 1099 from a client, you must still report the income to the IRS. Regardless of why you didn't receive the form, it doesn't give you a pass on paying income taxes. But how to report income without a 1099 Form? Check out this article to find out what to do in this situation.

Reporting Income Without 1099

Working as a self-employed person frequently entails greater responsibilities than working as a W-2 employee. You must promote your company, submit bills, and, of course, do the tasks assigned to you by your clients. However, if you perform work for certain clients, they may pay you without issuing a 1099. In that case, you have to still report the income to the IRS.

If you are self-employed, you may have multiple clients who paid you during the year. Perhaps some of them sent you 1099s while others did not. Consider the following scenario: one client sent a 1099 form, but the other did not.

Remember that the standard threshold for obtaining 1099 is $600. So, say you had one client who paid you $2,000 this tax year and another who paid you $500. In this example, the person who paid you $2,000 issued you 1099, whereas the one who paid you $500 did not. However, you must still disclose the entire $2,500.

What if You Only Get Paid in Cash?

Even if you are paid in cash and do not get a form 1099-MISC or 1099-NEC, you are still considered self-employed and have to report cash income.

The IRS considers contractors to be self-employed if they earned more than $400 in cash. As a result, they must submit a Schedule C, business income and expenses, and pay self-employment tax.

In other words, independent contractors who are solely paid in cash must, without a doubt, estimate and file taxes at the end of the fiscal year.

There are contractors who get paid using a third-party transaction network such as PayPal or Venmo. If this is the case, they will get a Venmo 1099 or PayPal tax form via the platform to submit their taxes.

Which Forms Do I Have to Fill Out?

If you are self-employed, each customer who paid you at least $600 throughout the year should submit you IRS Form 1099-NEC, Nonemployee Compensation. As the name implies, the objective of this form is to report wages given to someone who is not employed by the firm.

Although each customer is obligated to issue this form, there are various reasons why it may not be issued. 

Some of these causes are:

  • You received less than $600 from the client.
  • There is no record of your current address.
  • They failed to submit the form.

If the tax time is approaching and you haven't received your tax forms from a customer, contact them to determine if the paperwork was sent. The IRS requires businesses to submit these forms by January 31 of the year following the year in which the services were rendered.

When you file your tax return for the year, you sum up all of your income and report it on Schedule C of Form 1040. This form is for reporting your business revenue and loss as a sole proprietor.

In addition, if you are self-employed, you must file Form 1040-SE. This is the form you use to pay your estimated or quarterly tax payments.

Reporting Cash Income and Tips

If you get a cash payment, whether it is income or a tip, you must declare it. Unlike electronic payments, cash will not be automatically reported. However, this does not imply you are not required to pay taxes on the amount; it is still taxable income in the eyes of the IRS.

This might make things more difficult because you won't have any statements to look to in order to tally up any cash payments you received during the year. That implies you'll have to take charge of keeping track of them.

There are several methods for keeping track of your cash payments. IRS Form 4070-A allows you to keep track of tips by recording information such as the amount and date received.

Alternatively, you can enter them as a transaction in your bookkeeping software or ask your bookkeeper to do it for you. Adding cash payments manually often just takes a few seconds, so it's simple to do when you get cash payments or tips

Once you've determined how much you've received in cash payments, add it to Line 1 of Form 1040 Schedule C, "gross receipts or sales."

Reduce Your Self-Employed Income Tax

Deducting business expenses is one technique to lower the amount of tax owed. This is due to the fact that you pay income tax on net income rather than gross income. As a result, deducting qualifying business expenses reduces the amount of tax you owe when the time comes. From your home office to the car you use for work, you can deduct a wide range of costs as business expenses.

Bottom Line

Whether you receive a 1099 from a customer or not, you must pay taxes on all self-employment income you receive throughout the year. When you file your tax return, that amount will be added to your Form 1040. If you fail to disclose any of your self-employment income and are audited, you may face fines and interest on the tax you failed to pay. 

In other words, the IRS considers failure to pay a severe offense, and it is unlikely that it is worth the risk to save a few bucks.

Ines Zemelman, EA
Founder of TFX