In December, many people eagerly check their mail each day. Who sent us Christmas cards? Chatty newsletters? Party invitations? Pictures of the new nieces and nephews? Fun and festivities abound.

January, though, is a different story. All that remains of the holidays is the gift cards your lazy or clueless relatives sent, and maybe a few evergreen needles stuck in the sofa. You should closely watch your mail, nevertheless. You should particularly be looking for the envelopes labeled “Important Tax Document Enclosed” because in most cases that is true. Those envelopes are supposed to contain W-2s or 1099s or other third-party reporting documents you will need to do your income taxes for 2005. Occasionally the envelope will contain a junk-mail advertisement for a home equity loan; you can discard those. Conversely, not all envelopes with legitimate tax forms will bear the “Important Tax Document” legend; small payers may just use their regular envelopes.

What is important, though, is that you tick these forms off on your mental or paper checklist of forms you were expecting, so by the end of the mailing season you know what is missing. Admit it: you do that with Christmas cards, wondering why so-and-so didn’t send you one this year. “Maybe the mail is slow,” you think, so you wait till the new year to feel slighted.

The timing of sending these tax documents is similar. Except for one category, they are supposed to be mailed to you no later than Jan. 31. But unlike Christmas cards, you need these forms—or at least you really want them.

Why They Matter

What makes these forms particularly important is that you receive a copy, and so does the Internal Revenue Service. Their copy will be digested into a gigantic computer database, and compared to the tax returns you eventually file. If the information does not exactly match where it should, or is not logically consistent when it is not supposed to match, you will get a cheerless—nay, unpleasant—letter asking you to explain or pay up.

You should always check these forms to see if they are right, or at least approximately so. How carefully you check depends on the type of form, who sent it, and how obsessive you are. A W-2 from your civilian job with a large company will almost certainly be correct, and you probably need only look and note, “Yeah, I made about that much last year.” At the other extreme, a form 1099-MISC for fee income from a small theatre company should be scrutinized very carefully, particularly if they paid you expense reimbursements as well as the fee. My experience is that those checks are often jumbled together in inexplicable combinations when data are aggregated for 1099s.

In some cases, such an error on a 1099-MISC will not matter. Remember when I said “logically consistent” above? Not all fee income will result in a 1099-MISC. They are only required if three conditions are all met: 1) if the amount paid is $600 or more, 2) if the payer is a business, and 3) if the payment is for services (and not tangible goods).

As a result, you do not have to get corrected 1099-MISCs if the income you report on your tax return is more than the total of all the 1099s that the IRS received, though you should at least ask for them. But if all of your fee income is reported on 1099-MISCs (or more likely, one 1099-MISC), the total must match what you show. Don’t ask for a correction—demand it.

Must-Haves

These 1099-MISC forms, therefore, are nice to have but not vital. Other reporting forms, though, are showstoppers: you cannot complete your tax returns without them. W-2s, which report your income as an employee and the taxes withheld, must be attached to the return when filed. So must any of the other (and much less common) forms where taxes were withheld.

Some other forms are showstoppers simply because you have no other source for the information. If you own shares in a mutual fund, you know from their year-end statement how much they distributed to your account, but you do not know how that divides among ordinary dividends, capital gains distributions and nontaxable distributions until the 1099-DIV arrives in your mailbox.

Another type of showstopper occurs if you are a beneficiary of a trust or an owner of a partnership, S-corporation or limited liability company. These are known as “pass-through” entities, because they pay no federal income tax. Instead, their beneficiaries or owners report their appropriate share of the pass-through entity’s income and deductible expenses. You have no way of knowing what that share is until you receive a Schedule K-1 with your data.

Timing Matters

As I mentioned earlier, most of these forms are supposed to be mailed by Jan. 31. Schedules K-1 are the only exception, as it is unrealistic to expect these entities to close their annual books, file their tax returns and ship K-1s that quickly. You should be calling, though, if you have not received any other type of form by mid-February. Missing W-2s are a particular problem for actors who receive residuals. The checks come through SAG or AFTRA, but the W-2s do not. All too often, your address was out of date in the payer’s records, so the forms go to your second previous residence or third previous agent.

Two Seasonal Firsts

Let me issue my first reminder of this tax season that the law makes you responsible for knowing your real income, and paying taxes on all of it. Not receiving a 1099, or calling the payment an honorarium or stipend instead of a fee, does not exempt the income from tax.

Second, I have developed over the years a “Checklist of Potentially Deductible Items” for those in the performing arts, and will be happy to send you a free copy. Just call, write or e-mail me.

Are there money or tax questions you would like to see discussed in this column? Let me know, at 2835 N. Sheffield, Suite 311, Chicago, IL 60657, or call 773/525-1778 (888/525-1778 toll-free outside the Chicago area) or e-mail greg@gregmermel.com.

Greg Mermel is a certified public accountant whose clients in the arts range from individual performers to major theatre companies and suppliers. He has also been known to produce theatre.

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