We received a 1099 Misc from our contractor who did some work on our home after a federal declared natural disaster (Tropical Storm Imelda). Our mortgage company sent the contractor a 1099 Misc for the entire amount of the insurance check ($41909.62) we received even though we told them we only paid him $26,000 of that amount. We used the difference of the money to complete the work our selves. Since we did not pay the contractor the full $41,909.62 his CPA told him to send us a 1099 Misc for that amount. The CPA's explanation was that was how the contractor would not have to pay taxes on the full $41, 909.62. The CPA then said we would just fill the 1099 MISC on our taxes but it would not hurt us because we would then deduct everything we paid in order to offset the income from the 1099 Misc. The problem is I can see where to input the 1099 Misc but I cant figure out how to deduct the amount we paid to offset it.
Any help on this is greatly appreciated.
The trouble with filing a casualty loss on form 4684 is that it is only an itemized deduction and the casualty loss must be reduced by 10% of your AGI.
I'm of the opinion that you received an erroneous 1099-MISC (as did the contractor). Insurance proceeds, for a genuine loss, are not income, even if you do the work yourself or even if you don't do the repairs.
If you received an erroneous 1099-Misc, You have several choices:
- Ideally, you get a corrected 1099-misc from the payer
- Don't report it on your return. Attach a copy of the 1099 and a statement explaining the circumstances. You can't e-file. From the IRS instructions for form 1099-Misc: Form 1099-MISC incorrect? If this form is incorrect or has been issued in error, contact the payer. If you cannot get this form corrected, attach an explanation to your tax return and report your income correctly.
- Report the income as misc line 8, Schedule 1 income (enter in TurboTax at the 1099-Misc screen) . Then enter a line 8 deduction, for the same amount. In TurboTax (TT), enter at:
- Federal Taxes tab
- Wages & Income
- “I’ll choose what I work on” Button
Scroll down to:
-Less Common Income
-Misc Income, 1099-A, 1099-C
- On the next screen, choose – Other reportable income - Answer yes to Any other Taxable Income -On the next screen, Enter the number with a minus sign (-) in front. Briefly explain at description.
- Do nothing and hope you can explain it away when & if the IRS contacts you