Question about 1099 Independent Contractor Refunds

[biv1982]

Hi guys,

So I have this issue, I've been working with a client as an independent contractor for a few months and they asked me for my W-2 to send me 1099 at the end of the year.

The problem is that they've sent me a total of $100k in wire transfers and only about $8k is my actual service fee, everything else is spent on advertising and Google charged me close to $70k already.

So I know that they'll send me 1099 with the whole $100k they wired me, even though they assured me that they'd only send me the 1099 for my actual $8k fee, that's not a problem.

The problem is that I stopped working with them and I have roughly around $20k left in the unspent advertising budget. Naturally, the company wants me to wire the remaining balance back to their account. So I would basically be sending them a refund.

Now my question is do I need W-2 or any other form like that from THEM to send them the money back? Because my worry is that I'll wire them the $20k back and they'll send me 1099 with the full $100k it'll look like I've made an extra $20k and I'll have to pay taxes on the money that I refunded them.

If anyone could help me figure it out, I'd really appreciate it.

Thank you.

[VolvoGirl]

They want you to fill out a W-9 to give them your ssn or EIN if you have one.  You will fill out a schedule C in your personal tax return.   Yes you put down all your expenses and the refund you sent back.  You will only pay tax on your Net Profit.   

You dont need a special form to send back the refund.  Just keep good records if the IRS ever asks about it.

Here is some IRS reading material……

IRS information on Self Employment

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center

Pulication 334, Tax Guide for Small Business

http://www.irs.gov/pub/irs-pdf/p334.pdf

Publication 535 Business Expenses

http://www.irs.gov/pub/irs-pdf/p535.pdf

[VolvoGirl]

Well get a receipt for the 20,000 refund for your records.

[biv1982]

Ok, so basically just keep the record of the wire transfer I'll send them with a full refund and it'll be good enough for my tax return and if IRS ever needs to verify it, I can just show them that wire transfer?

[Carl]

The IRS expects you to keep your own detailed records of your business income and expenses, and to use the records at tax filing time for completing your tax return. It really is that simple. There are three golden rules to always keep in mind when dealing with taxes and the IRS.

 1) You are guilty until proven innocent.

 2) The burden of proof is on the accused (that's' you!) and not the accuser.

 3) If it's not in writing, then it *did* *not* *occur*.

[Opus 17]

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@biv1982 wrote:

Ok, so basically just keep the record of the wire transfer I'll send them with a full refund and it'll be good enough for my tax return and if IRS ever needs to verify it, I can just show them that wire transfer?

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It's not just the fact of the wire transfer, but why.  You would need to prove it is a legitimate business expense of your subcontracting business.  So keep proof of the reason as well as the date and amount. 

[biv1982]

Ok, great, thanks for the rules 🙂

So do you think having a wire transfer record of the $20k refund back to the company is going to be good enough proof in case I need it?