Why did I get this 1099? What it means and how to avoid costly mistakes

Ralph
00:00:00

Have you ever received that 1099 form in the mail and you felt this wave of panic wash over you? You stared at this document wondering, why did I get this? And more importantly, what am I supposed to do with it? If you're feeling overwhelmed and confused, you are not alone in this. Many people find 1099 forms daunting, but understanding them is crucial for accurately filing your taxes and avoiding potential penalties.

So today, we're going to tackle this head on. We're going to focus on the most common types of 1099 forms. I'm going to talk about their implications for your tax filing, and more importantly, I'm going to talk about how to avoid costly mistakes. So let's bring clarity and confidence to your tax journey.

Stick around to learn how to navigate these forms with ease and integrity as we help you achieve financial success from a Christian perspective.

Podcast Announcer
00:00:51

In a world where crushing debt keeps you trapped, where living paycheck to paycheck has become your new normal, and where the dream of retirement seems impossibly out of reach, there's hope. Join financial evangelist Ralph Estep Jr. A man who's walked through the fire of financial failure and emerged stronger on the other side.

Welcome to Ask Ralph, the show where real world experience meets biblical truth to break the bondage of financial despair.

Get ready to take control of your money, break free from the financial stress and align your resources with God's purpose for your life. This is Ask Ralph with Ralph Estep Jr.

Ralph
00:01:30

Well, hello everyone, and welcome to another episode of the show. I am your financial evangelist and I am thrilled you're joining me today.

Thank you so much for tuning in and taking some time to spend a little time with me. Now, if you missed yesterday's show, we talked about, is God calling you to start a side hustle? A lot of people thought that was a little unconventional, but if you missed it, I'm going to encourage you to check it out. I had some inspiring stories and insights on how your faith can guide you in creating additional income streams.

So it's definitely worth the listen and you can find all of our episodes right at askralph.com. We've got a treasure trove of archives out there with a valuable information on financial and faith related topics. So again, feel free to go and check those out at your convenience.

Well, today's listener question comes to us from Gurney all the way from the state of Texas. And Gurney writes this. She says, "Ralph, I recently received a bunch of 1099 forms in the mail, and I am completely overwhelmed. I've been freelancing as a graphic designer, and I thought everything was right, but now I'm staring at these forms and I have no idea what to do. I'm worried about making a mistake and getting in trouble with the IRS. What do these forms mean, and how can I handle them without losing my mind?"

Well Gurney, I'm going to help you not lose your mind. That's certainly one of the goals for today. I think that's the first time somebody said that to me in a listener question.
So Gurney, you made me laugh this morning, but I do feel your pain. I get it. I've spent 30 years working with many clients who found themselves in a similar situation, Gurney. Because when you get those 1099s, you know, if you don't know what they are, that can feel overwhelming. Especially if you don't know what they mean, you don't understand how they affect your tax returns.

What do I do with them? But don't worry, Gurney, we're going to break it down for you today and we're going to make sure you have all the information that you need to handle those 1099 forms with confidence. So let me start by telling you a story about one of my clients and her name was Brooke and this is a heartbreaking story.

Now, Brooke decided she was going to start this successful online sales business. It was really a part time thing. She just had a baby and she was raising her daughter. She thought there was a way to bring in a few dollars.

And she told me this story after the fact, when she came in and sit with me, she said one day, it was in the summer, Ralph. She said, I was in the backyard. My daughter had just started to crawl around and sort of taking those first steps and she looked out front and she saw that the mail truck had arrived.

A lot of people can appreciate that, you know, see that mail truck arrive and you've got the anticipation of what could have come in the mail. So she scoops up her daughter and she walks out to the mailbox, opens up the mailbox and starts thumbing through it. And all of a sudden she sees this letter from the IRS. Had her name on it.

She wanted to make sure it was for her. And she starts instantly wondering what in the world could this be? Of course she ripped it open. Opened up the letter and glances down. And the first thing she sees was balance due $30,000. And she told me after the fact, she said, Ralph, I nearly dropped my daughter to the ground.

I had no clue what this was. I was scared to death. Listen, I was barely getting by at the time. She started thinking in her head, how am I ever going to pay for this? She starts looking over the notice and it said something about unreported income from this 1099-K. And she started thinking about it. She says, wait a minute.

Yeah. I think I'd know a little bit about this. And I'm going to talk more about this later in the show, but that 1099-K is something we're seeing more and more of. That's a form that providers who you take credit cards, you take online payments or sending these out to people who use their services.

And the problem was Brooke had never reported this income on her tax return. She later said to me, she said, Ralph, you know, this business was just a sideline thing. I got to the end of the year. I really didn't make a lot of money. I didn't know what to do. So she came into me for help. And she told me, she said, Ralph, my life is in shambles.

I don't know what to do with this. I've been struggling financially. I had to move back in with my parents. That online store that I thought was going to be so promising had completely turned into a bust. And then she says, Ralph, I get this letter in the mail. She said, this was stuff that happened a year ago.

I figured, Hey, I filed those taxes over a year ago. Why are they just now coming back to me? And she didn't have any records and she's sitting down in front of me. And I'm taking all this in and I'm thinking, this is going to be a mess. I honestly, this was one of the first times in my career. I thought, I don't even know where to start because I look at this notice from the IRS.

And they're asking her for $30,000 in taxes because there was over a $100,000 with the income that she never reported on tax return. I look across the desk and I said, Brooke, explain this to me. She says, Ralph, she said, I was running this online business. She said, honestly, I didn't even touch this stuff.

It was like children's clothes or something along those lines. And she says, Ralph, I didn't even touch the stuff. It was drop shipment. I was just bringing buyers and sellers together. And when I got to the end of the year, I hadn't made any money. So I figured, Hey, if I didn't make any money, I don't need to report this.

So I said to her, I said, well, how long have you been doing this? She goes, i've done it for a couple of years. I said, well Brooke, be prepared. You're probably going to get another one for the following tax year. So she goes, Ralph, you got to help me. I got to get out of this problem. And I said, okay, let's, first of all, take a step, let's take a break.

Let's talk about what the situation is. And I said to her, I'm going to need you to go back and gather all your information. I said, we know a starting point because the IRS is saying that you collected X number of dollars. Like I said, this was over $100,000. I said, so we know the sales side of this. I'm assuming that all of your sales came through this online store.

She goes, yeah Ralph, she says it was an online store. No one came to me. I didn't get any cash or anything. Everything came through that online store said, well, the good news about that is at least we've got a starting point. We can start with that income. Now we got to do is figure out what were the expenses? I said, well, you said to me, you didn't make much money.

She goes, Ralph. All my expenses were buying the stuff that I turned around and sold. I said, well okay, well, how did you buy this stuff? She goes, well, I used a credit card. I used my debit card. I paid with checks. I did online transfers. And I said, okay, I'm going to need all of that information. So fast forward a month or two, Brooke came back in and she had all of her information.

And it was a mess to be honest with you. It was like that old shoe box approach, but we were able to piece it together. I put together a tax return will not actually a whole tax return, but just a tax return related to that income. And I said to her, I said, listen, we're gonna have to contact the IRS and we're going to have to explain to them what happened here.

So that was the starting point. She filed this, that was a schedule C actually, cause she hadn't set up a separate business. I don't want to go down that rabbit hole, but we filed these reports with the IRS. We provided all the documentation they needed. And it took a while, but initially, you know, we're looking at this notice.

And not only were they trying to charge her the tax of $30,000, they were also adding a penalty for substantial understatement of income. They were adding interest. They were adding failure to file, all kinds of stuff. I am talking about hundreds of dollars in penalties, but here's the good news. We were able to get the information resolved.

We were able to show that she actually didn't have a profit. She actually lost money in both of these tax years. So we filed those returns. We got those pieces of those returns filed, and the IRS came back. They waived the penalties. They waived the interest. And they understood that Brooke had made an honest mistake and was taking steps to correct it.
So you might be saying, Ralph, that is a really interesting story. Yeah. And what do we learn from that? One of the things that big takeaways that we learned from that is the importance of keeping accurate records. If you have these what they call these small side hustles, and this is a personal pet peeve of mine.

A lot of people don't realize, Hey, you're in business. You need to keep track of not only the expenses, keep track of the income, keep track of your mileage. A lot of people go into this what, oh, it's just this sort of sideline thing, Ralph. It's no big deal. Well, when the IRS gets that 1099-K from that online provider like Venmo or cash app, or one of those, it's a big deal for them because they're going to wonder, and they're going to look at your tax return and say, Hey, how come this was never reported?

So you've got to understand the tax implications of that. And like Brooke learned, you can't just ignore those 1099 forms because it leaves the serious consequences. You're going to go out to your mailbox one day, or you're going to get that certified letter from the IRS. But here's the cool thing. With the right guidance, even the most daunting tax issues can be resolved.

So that's what I'm going to talk about today. I'm going to tell you about how I, and I can encourage you because these are difficult tax situations, but there are steps that you can take to get back on track. And if you understand the different types of 1099 forms and their implications, here's the truth.

That's why I want you to continue to listen today. You can avoid costly mistakes and you can approach tax obligations with confidence.

Remember, you can submit your own questions for the show. You can go to justaskralph.com. We'd love hearing from you and helping you navigate your financial journey.

And don't forget, we go live every Tuesday. We changed this a little bit. We're now going live at Tuesday at 1 PM Eastern time, and you can join us. Some, a lot of people have asked, well, how do I get to the live show? It's really simple. You just go to askralphpodcast.com/live. It's real time interaction. You can bring your questions. You can ask questions right there in the chat. So I'm going to encourage you again, that's at askralphpodcast.com/live.

Well you know, before I get rolling into these big discussion about 1099s or implications, I want to ground ourselves in scripture.

And this topic today connects directly to the biblical principles of stewardship and responsibility. So let's open up our Bibles and let's turn to Romans chapter 13, verse 7, and it says this. "Give to everyone what you owe them: If you owe taxes, pay taxes; if revenue, then revenue. And this is the part I really love the best.

If respect, then respect; and if honor, then honor." And you think about that Bible verse for a second. It reminds us of our responsibility to fulfill our tax obligations. It's something that a lot of people, when they talk about the Bible and taxes, its their go to verse. But the bigger takeaway from that, and I think the larger thing is you have to do it with integrity and you have to do it as you know, being responsible, because guess what?
When you decided, Hey, I'm going to take this walk of faith, I'm going to be a Christian. I'm going to call myself out as Christians. Well, guess what? We're called to be good stewards of our finances. It's a character thing for us. And that includes understanding and accurately reporting our income.

Well, let me tell you what I'm grateful for today. I'm grateful for the guidance that the Bible provides in all areas of our lives, including our finances. And this is a thing that a lot of people in the secular environment don't want to talk about, but I truly believe that when you marry these two worlds together, you can really get to that next level of understanding your purpose and mission in life. So let's embrace this guidance as we tackle the 1099 forms today.

Well, let's get back to the beginning. We'll be started to talk about. So why did you receive these 1099 forms? Just like Brooke, you know, she didn't understand why she was getting this. You know, you could be a freelance writer, a writer, you're working hard to build your business and you've been paid by several clients throughout the year.

And suddenly this stack of 1099 forms arrive in the mail. It's like your question today, and you're excited about the income, but you're confused or overwhelmed by what these mean and how they will affect your taxes. And like I said earlier, you're not alone in this. Many people receive these 1099 forms and they have no clue what to do with them.

They see a form. It looks official, but see, here's the thing you need to understand. Real simple. You don't have to panic about these because a 1099 form by its very nature is just information. It provides information that somebody paid you or something along those lines. They provide it to the IRS and the IRS is looking for you to report this.

So let's get to a discussion about some of the more common 1099 forms because a lot of people don't understand what to look for, maybe they're doing their own taxes and they just don't know what these things mean. Now the most common one of these that I see routinely is what's called a 1099-INT.

Now, this is the one you're going to get from your bank, from your credit union, or what a savings account or an investment. And it reports the income that you earn from bank accounts. And here's the deal. A lot of people don't know this. Banks and financial institutions are required to send these to you if they paid you at least $10 in interest during the year. So if you have a bank account, if you have a savings account, a checking account, maybe it's a money market account, or some kind of investment account. If that bank or that institution, whether it be a bank, a credit union, whatever that is, if they've paid you at least $10 for the year in interest, they have to send you this 1099 form.

Now you might be saying, Ralph, that's great. Who cares? Well, here's why it matters. Because not only do they send it to you, they send it down the line to the IRS. So the IRS has this form. They look at your name, social security number, they put it in your tax record. Well, when you go file your tax return, if you don't put that on your tax return, the bells and whistles at the IRS go off and you're going to get that audit letter to report it.

So that's one of the big ones. Another big one is the 1099-DIV. So if you think about it, the first one was INT interest. The second one is DIV that's dividends. And this is the 1099 reports dividend income could also report capital gains from stocks or mutual funds and other investments.

Again, this is one that the bank or the credit union or the investment company is going to issue if you've had at least $10 of taxable dividends from stocks, or if you sold stocks in a mutual fund during the year, they triggered these capital gains. I'm not even going to get into the discussion of taxation of these because not that's not for today's topic. I've done many shows on that. But again, they send this to you.

They send it to the IRS. Now, while we're here talking about, I just want to bring something up because this happens a lot in my practice. People will come in and get their taxes done. They're sitting in front of me. And I'll say to them as we're going through the questions, I'll say, okay, I got your W2.

And we've talked about that on this show. I got your W2, but Hey, do you have a bank account? Well, of course I have a bank account Ralph. Doesn't everybody have a bank account? Well, let's just assume everybody does. Fine. Okay. Well, did you earn any interest in your bank account? Well Ralph, why would you ask me that?

Well, because here's the deal. If you got more than $10 in interest from your bank, you've got to report that on your tax return. And a lot of times they'll say to me, well, I didn't get anything in the mail. I said, okay, well, here's the deal. And this is why I'm gonna talk about this for a second. A lot of financial institutions are now making those things available in their online banking portal.

So make sure you're checking that. Most of these online investment sites, these banking sites have a button that says something like tax forms or important tax documents. Go and check that out because before you file your tax return, you want to make sure that you've got all of your items. We talked about this the other day. Make sure you got all your pieces of the puzzle together.

And they don't necessarily mail those out to you anymore. I see a lot more of these being issued electronically. So just a little pro tip there, go check that out. Now, another 1099 you'll get, and these are really two different ones. And the IRS has kind of changed us around a little bit. It used to be just a 1099 miscellaneous, where if you had any kind of income such as rents or royalties, if you got an award or a prize, I'll talk about a funny story about that in a second, or maybe you made a payment to an attorney. Now here's the deal with these and you probably heard this. A lot of people are aware of this.

If someone has paid you at least $600 in the prior calendar year. So if you've got that $600, now with royalties it's a $10 piece, but that's a little bit more inside baseball than you need it. But you've got to report this income on your tax return. So I'll tell you a funny story. I had a client that entered a hot dog eating contest up in New York.

And part of the thing about this hot dog eating contest is there was a prize for the first, second and third, you know, top prize winner. Well, my client ended up winning second place, which is fantastic. I'm not sure how people do this. You ever watch this on TV. They stuff these hot dogs in their face.

They wet them down with water. I actually think it's kind of disgusting, but anyway, wins this award. Didn't think another thing about it. Well, tax time rolls around, came in to get his tax return done. And I didn't even think to ask him. He didn't mention about this hotdog eating contest, didn't know there's an issue. Do his taxes, next summer rolls around, he gets an audit letter in the mail and he calls me and he goes, Ralph, Hey man, you made a big mistake on my tax return. And I'm like, what are you talking about? He goes, I got a letter from the IRS said that I had a thousand dollars in income. You didn't report. And I said, wait a second. I said, what are you talking about?

And he says, he says, listen, I get this 1099 or this form from the IRS. It says that I got this 1099 from this company. And I said, okay, well, tell me what that was. Ralph, I entered this hotdog eating contest up in New York. I think it was Nathan's hotdogs. One of those. And he says, now they're saying I had to pay tax on it.

I'm like, yeah, you should have mentioned that to me because yes, If you win a prize, you know, it's funny like I don't see as many of these anymore with the radio Station, but the radio station should be good for this. They'd give away tickets to something and if that reaches more than six hundred dollars Then that's income you need to report.

So be aware of that. If you win one of those prizes, it might sound silly. Maybe you want a vacation or something like that. You got to know about that because that's got to go on your tax return. Now, here's where the IRS made a little change. So everything used to be reported on that. You know, those prizes, those winnings, those, any of those categories that rent, but then a couple of years ago, and I want to say three or four years ago, the IRS kind of split these forms in two, Now you've got this form called a 1099 NEC, which basically means non employment income.

So if you are in the subcontractor field, you're an independent contractor, you're a freelancer, you're self employed, you're going to get this form if anybody paid you more than $600 in a calendar year. So when I tell these stories about people sitting at their desk and they've got these great side businesses going and they look over and by the end of January, beginning of February, start getting in all these envelopes in the mail with these 1099 forms in them.

That's exactly what I'm talking about. Sort of along the same lines is what my client had, that client, Brooke, who had that 1099-K a little bit different, but the same idea. So again, you're getting this form, they're sending it to you and they're sending it to the IRS. So your account at the IRS your file at the IRS is seeing all these things.

So if you don't report that, and I'll talk a little bit in a few minutes about what that looks like if you don't report it and how to maximize your situation with that. You've got to report it, whether that's be on a schedule C, or something else like that. Maybe it's on a partnership return because this is income they're going to be looking for.
Now, let me mention a couple other of common 1099 forms.

Now, one of the most common forms that I see people who are retired get is what's called the 1099-R form. This is the form you're going to get if you're in retirement and you're receiving money from a pension or from an annuity, or maybe you're taking money out of your own IRA.

Now again, you're going to receive this form if the distribution was more than 10 bucks. Again, they're sending it to you. They're sending it to the IRS. So you've got to make sure you've got those forms and make sure you're reporting those. Again, if you don't, what happens is, and a lot of people miss this one.

Sort of another pro tip. Let's say that you, and I'm going to be talking about this on the show later on in the week. Let's say you have an employer and you decide to change jobs. And like I said, I'm going to be doing a show about this changing job things with the retirement cause it's a big deal.

Let's say you do that. You change jobs. And one of the things you do is you decide to take that money out of the retirement plan at job A and you either distribute it out and put it into an IRA or you roll it over into the new return into the new company. Well, a lot of people would think, Oh, no big deal.

You know, the money went from point A to point B. Well, the IRS is going to issue a 1099-R form. It's not going to be taxable income to you, but you've got to keep your eyes open for this. A lot of my clients don't realize that. They come in and get their taxes done. And I'll say to them, Hey, you changed jobs.

That's fantastic. What did you do with your pension? Well, Ralph, I just, I took the pension money and I moved it to my new employer. Okay. Well, I'm going to need that 1099 form. Ralph, what are you talking about? Yes, there's a 1099 form. It actually has a code G. Again, we're getting way down into weeds, but be aware of that.

So if you're preparing your own tax return, or if you're working with somebody, make sure you mention that to them because this income needs to be reported on your tax return. Another less common one, but one I see a lot now is a 1099-S. Now that's S as in Sam. So this is what happens when you sell real estate, whether you sell your primary home, maybe you sell a beach house or a vacation house, the proceeds from that are going to be reported by the attorney or the settlement agent to the IRS.

So again, they're sending a copy to you and they're sending a copy to the IRS. So what are we thinking? Well, here we go again. The IRS is going to be looking for you to report that. And a lot of people miss this one as well. They'll say to me, Ralph, I sold my primary residence. I did a little Google search and Dr. Google told me I don't have to pay any tax on this because I didn't make a big enough profit. That's true. But if you don't report it on your tax return, again, the IRS has this out in your account file. You file your tax return. The two don't match. You're going to get that letter from the IRS. And here's the thing.

I talked about this the other day. When you get those letters from the IRS, my personal belief. It sometimes triggers additional questions. So if you can avoid it, make sure you report that. Now, another one that is, this is one of those unfortunate 1099s that you can get. And it's a 1099-C which reports the cancellation of debt.

Another one, a lot of people miss. I see this when the economy's not doing too great, or maybe they had a situation where they went through a financial hardship. So if you've got a lender, whether that be like a car loan or credit union, personal loan, or a credit card, and that lender says, you know what, Ralph, we see that you're struggling.

Here's what we're going to do. We're going to take a settlement for what you owe, or we're going to write it off directly. Well, here's a deal. If that is equal to $600 or more, so if the amount that was written off is $600 or more, a 1099-C is generated. Again, they send a copy to you. They send a copy to the IRS.

And here's the thing a lot of people don't know. Sounds great when you're going through it. And I'm not going to, I'm not going to say it's not wise to do it because, and let me explain it in a second, but what this basically is, is canceled debt. So if someone, if you owe someone money, let's just use a simple example.

You owe a credit card money. You're struggling, you can't afford to make those payments. They reach out to you, you know, they're calling every day, they're calling every week and they're saying, Hey, when are you going to pay us? When are you going to pay us? And you finally get somebody on the phone. You say, listen, I lost my job.

I got hurt at work. I can't afford to pay this. And I'll say, okay, sounds like you can't pay this. We're going to just write that off. We're going to do what's called a charge off. A lot of people say, yeah, it's fantastic. Now I don't have to worry about this anymore. And of course, most of the time it's already destroyed their credit, which is a topic for a whole another show.

And they just go on with their lives. And then all of a sudden tax season comes around and get to the end of the January. They're out at the mailbox. They open up this letter and it's a 1099-C form. And you're going, what in the world is this? Well, guess what? You've got to pay income tax on that debt that was forgiven.

Now there's some nuances to that. If you file bankruptcy, you don't have to include it. If you are insolvent, you don't have to include it, but a lot of people don't realize that. So if you're settling a debt, if you're settling a credit card for less than the full value, just realize that that settlement is going to be income to you.

You might be saying, Ralph, well, why in the world would I do that? Well, here's another little pro tip. Let's just say they write off a thousand dollar credit card balance. You can't pay them. You know, they can't get blood from a stone. They've been trying and trying to get the money from you and you just don't do it.

And they charge it off. And you say, okay, well, Ralph, they're going to send me a 1099 for a thousand dollars. Correct. But think about this for a second. I like to do math on the show, but this one's pretty simple. So here's your options. You could pay them a thousand dollars. You can't afford to pay it.

Fine. So now they're going to issue this as income. So you get this income, you put it on your tax return. Well that thousand dollars of income isn't a thousand dollars in tax. It's whatever your tax rate is. So effectively, for a thousand dollars, what we call charge off or 1099 C, it might cost you $300 in tax, but what's better? 300 or a thousand? Seems pretty straightforward to me.

So those are really the big 1099s. The ones that I see a lot in my practice and the ones you need to be aware of. And as I talked about, you're going to get a 1099 INT from the bank. Again, check online to make sure  they have it  sent those to you. If they don't mail them to you,  you go get them.  We  talked about the  miscellaneous  ones. We talked  about the 1099-Rs. Now let me take  just a second  and talk about  Backup Withholding.  Because as we're talking about 1099s this is something that a  lot of people miss So let's say you've set up  this  bank   account or you've set up this Investment account. And for some reason, the person who was setting up the account never got all of your tax information. They didn't get your social security number. Maybe they didn't get your date of birth or something like that.
And they start sending you these letters. And a lot of people just ignore these and they just say, okay, you know, we still need your information. We got this bank account, but we need your information. Why do they need that information? Because at the end of the year, they've got to issue that 1099 form.

Well, if they don't have your full social security number, if they don't have your full address, then here's what they're going to end up doing. A lot of people don't know this. They will be mandated by the IRS to do what's called backup withholding, which basically means they're going to grab your tax money right at the point of giving you your money.
So if you've got that bank account and you've not complied with them, and you earned a hundred dollars in interest, what they're going to do is they're going to trigger 30%. Some of them do 35 percent and they're going to take that 35 percent and send it to the IRS. So if you get that, you know, and generally the backup withholding rate is 24%.

So I may have misspoken there, but just understand that. Give them the information they need. It's very important. So we talked a few minutes ago about all these different 1099s. I shared the story of my client. But let's get into a real, like in depth discussion about what happens if you don't report that 1099.

And it doesn't really matter what kind of 1099 it is. Again, think about it. You got that in the mail. Maybe they sent it to you. You could upload, but the IRS also got it. And this doesn't happen right away because it takes the IRS between 12 and 18 months to catch up. But if you don't report that income on your tax return, it can have serious consequences because again, they got a copy of it.

They're automated systems. They're looking at Joe's return. Joe had these 1099s. Here's Joe's tax returns. Doesn't match. When it doesn't match, they start nailing you with penalties. They nail you with interest, can levy your wages. Client situation. They saw this 1099-K. They go look at her tax return. And they said, well, this online sales site said that you made $120,000.

And again, the IRS has tunnel vision. All they see is how much income, how much revenue was generated. They have no concept of the expenses that went into that. And if you fail to file that, they can charge you interest. They can charge you penalties or come after. Like I said, they'll attach your wages. In addition to that, if you intentionally disregard the requirement to file, there are much bigger penalties.

So that's really the whole discussion about, you know, what could happen if you don't, if you don't report that 1099 income. So now you might be saying, Ralph okay, great. I get it better, better report those 1099s, better make sure that if the IRS has it, I'm going to report it. So one of the things you could do to minimize the taxes on those 1099 incomes is you can look at tax efficient investments, you know, meet with your broker and talk about doing tax advantage stuff.

So you're not paying income as you go such as IRAs or 401ks, because if you've got those traditional bank accounts, as they earn interest or as they pay dividends, that's taxable income to you. Now here's the big one. For anybody doing those side gigs or that, you know, those side businesses, you got to listen and listen to me.

If you're not doing this, you are digging a hole bigger for yourself. As soon as you start that small business, that side, but you may be saying, Ralph, like my clients. Oh, Ralph, this is no big deal. Just a little odds and end thing to pay some bills while my daughter's young. Keep accurate records, keep every receipt, keep all the details of that, all your startup costs, all your operational costs, whatever you spent money on, because you have to, you have to expect at the front end that you're going to generate income. If you generate income, the IRS is going to see it and they're going to be wanting you to report that income on your tax return. Well, if you've got to report the income and not have to pay tax on all of it, you've got to keep records of those things so that you make sure that by the time you get to the end of the year, you get that 1099 or you get that 1099K, you can report that income.

Absolutely show that income, but also show the expenses. Let me just leave you with a couple more things here. What are some practical tips to avoiding 1099 mistakes?
As I said, keep accurate records. File on time. Make sure you file your tax return on time. Be aware of those tax filing deadlines. And if you know you did that gig work or you did that side work, make sure you've got all your 1099s. Make sure you've put all that income on to your tax return. Double check your information.

Make sure you've included all that income and listen, this may be a point where you've got to get some professional advice because you may not understand exactly what you're getting into. And see, 1099 forms can be, they can seem complicated, but the truth is, as you see, they are essential part of our financial lives.

And as Christians, we're called to be responsible in all of our financial dealings, which means you've got to understand these different types of 1099 forms. You got to understand their tax filing implications, and you got to make sure you're reporting this. So let's do that.

Now, you know one of the things I do every day is I also write a blog post. So if you want to go a little deeper, not that we haven't gone pretty deep, but I've got a nice chart on today, it shows you the different kind of 1099 forms. And like I said, every day, when I do a show, you can get a copy of our blog post.

You can go to askralphpodcast.com/blog, go a little deeper there. I give you more references. There's a great chart that talks about all the different types of 1099 forms and help you navigate that with ease.

Well, now let's get to our reflection questions because we've covered a great deal today, but I just want to take a few minutes and reflect on that. So here's the first one. Number one, what small step can I take today? What can you take today to improve your record keeping and ensure that you accurately report your income from those 1099 forms. So I'm going to encourage you. Think about those practical, immediate actions. A lot of people are doing these side businesses.

They might not seem like much, but if you're doing that and you're making money at it and it doesn't mean you're making a profit at it but if you're making money at it, if somebody is paying you and especially if you're doing that online just be prepared. You're going to have to report this income. So what can you do to make sure you're reporting it correctly. Number two thing. How does my faith influence my approach to financial responsibility and tax obligations?

See, if this was just a secular show, we would stop there, but we're taking it to a whole another level and we're examining our faith and we're saying, okay, how does our faith influence that approach to being responsible with my tax obligations? And you've got to really reflect on that. It's the whole reason I do this show because it's not just about the practical filing of the tax return.

It's about managing ourselves with integrity and living by those biblical principles. And number three, what changes can I make to ensure that I'm using my resources wisely in a way that honors God's principles of stewardship? And that's kind of the big takeaway from most of our shows. Think about the broader implications of your financial decisions and how you can align those and use those resources with your faith.

Imagine waking up in the middle of the night, your heart's racing, you're thinking about those 1099 forms that are piling up on your desk. It starts, like I said, a few times, you're seeing those things start to collect in the corner of your desk and you've got this fear of making a mistake and you're worried about getting penalized by the IRS.

And listen, that can be real and overwhelming. You might feel trapped. You feel unsure where to start or what to even do. You just say, Ralph, I just keep on putting it off. But the thing is, as you continue to put it off, the stress is building and that stress can be, this can be consuming. It affects your sleep.

It affects your work. It affects how well you do that side business. And overall it's affecting your wellbeing. But listen to me, it doesn't have to be that way. You don't have to carry this burden alone. I've been working with people just where you are. Like I said, for over 30 years. And I've helped countless others navigate through these same pieces of confusion and this anxiety.

And I understand the weight of this responsibility. This is what I do for a living. And I'm here to lift that weight off your shoulder. So don't let the fear of this financial uncertainty control your life any longer. Take the first step towards relief and peace of mind by booking a call with me today.

You can do that right by going to askralph.com and together we'll untangle the complexities of your 1099 forms. We'll talk about that small business. We'll ensure that your taxes are filed accurately. We'll make sure they're filed timely, and we'll create a plan to help you avoid future stress. Now you might have to take some time to go back and reinvent the wheel and put all your books together, but you can visit Ask Ralph right now to schedule your call.

Let's turn that overwhelming mountain of paperwork into a manageable step and a manageable path forward to place that anxiety with confidence and that stress you're feeling with financial success. Don't have another sleepless night. Take control of your financial future today. Book that call with me.

And I'm going to ask you for another favor. If you find value in the Ask Ralph show, so I'm going to ask you to share the show. That's a thing you can do. But please consider supporting the show. You can buy us a virtual cup of coffee at askralphpodcast.com/support.
And you might be saying, Ralph, why do you do this? Well, here's why. Your support helps us spread this message, this message of hope, this message of a break in anxiety and breaking that feeling of overwhelming to others who need it. Just think about how you've been in that position. You didn't know what to do.

And then maybe you found the show or you found somebody that was a mentor to you. Well, help me reach more people again, by going to askralphpodcast.com/support.
Well, I hope you enjoyed today's show. We really got in deep with the 1099 forms. We talked about the ones that are most common. We talked about some of the ones that aren't as common. The big takeaway is if the IRS is getting this information, you've got to report it on your tax returns.

Because remember, as Christians, we're called to be good stewards of our finances, and that includes fulfilling our tax obligations with integrity and responsibility. Now tomorrow, I'm going to change it up completely. We're going to talk about technology. It's technology Tuesday, and we're going to be talking about how secure is your phone.

I'm going to tell you about 9 shocking risks that you might be ignoring. So that's a show you don't want to miss. Again, encourage other people to check it out. Remember this as I close. My passion is to help you achieve financial success. I want to see you live out your dreams and I want to see you grow in your faith.

And I know together, working together, we can master your finances from a Christian perspective. So as I always end the show, stay financially savvy out there and may God bless you abundantly.

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