Understanding Tax Terms: All those 1099’s – Be prepared to file your tax return
So many 1099’s. How do you keep them all straight? Here is a quick review of the most common 1099’s to help you prepare to file your tax return.
Most taxpayers receive at least one 1099 each year. Virtually every small business, including sole-proprietors, must issue at least one 1099 each year. Here is a summary of the most common of these informational tax forms that you will need to file your tax return this year.
The Form 1099
The Form 1099 is an informational tax form that captures economic activity that is then reported to you and the tax authorities. The primary purpose of the form is to ensure you are reporting your taxable income. The forms are typically required to be sent to you on or before January 31st each year. The same information is due to the IRS on or before February 28th (March 30th if the form is filed electronically).
Common 1099 Forms
1099 INT: This is the form you receive for interest earned. You should expect one of these for every bank account that pays interest, no matter the dollar amount of interest.
1099 DIV: This form captures dividends paid to you. Correct classification of dividends on this form is crucial. Tax rates are lower for qualified ordinary dividends versus other types of dividend payments.
1099 B: You will receive this form if you sell stocks or mutual funds. This tells the IRS to look for possible taxable investment sales.
1099 MISC: This is the default catch all 1099 for income earned when you are not an employee. This form is provided to independent contractors and attorneys for gross compensation. If you are a sole proprietor, each of your customers that are billed over $600 should be sending you one of these forms.
1099 R: You will receive this form if you have distributions from a qualified retirement account during the year.
1099 G: This form captures governmental payments to you. You may receive one of these if you receive a state tax refund.
1099 SA: This form captures distributions from health reimbursement accounts like HSA’s and MSA’s.
What you need to know
- Use the information in this tip to ensure you are receiving the necessary 1099’s to file your tax return.
- To be sure, create a list to confirm receipt of the necessary 1099’s. Missing 1099’s is a common reason for a delay in filing your tax return.
- There are other types of 1099’s. If you receive a 1099 and are not sure what the form is, ask for clarification.
Remember, the IRS receives these forms. Their computers will run a cross-check against your return to ensure you have not omitted any of them.
Check Those 1099s
As you receive informational tax forms like W-2s and 1099s, you will want to make sure they are correct and received on a timely basis. Here are some tips to make this part of your tax filing experience smooth.
Now is the time you will start receiving year-end informational tax forms. We’re all fairly familiar with W-2s from our employer, but you will also probably receive a number of different 1099s. Make your tax filing experience smooth this year by staying on top of these informational tax returns. Here are some tips.
- Know the different types of 1099s. The most common 1099s that taxpayers receive are:
- 1099 INT: for interest received
- 1099 DIV: for dividends received
- 1099 B: for brokerage transactions (selling stocks and mutual funds)
- 1099 R: for annuity, retirement, and pension income
- 1099 MISC: for miscellaneous income
- 1099 K: for merchant card activity
- Make a list. Review last year’s list of informational tax forms and create a checklist of them. Add to that list any new forms you might expect to receive. Mark them off your list as you receive them.
- Check for accuracy. Review each of the informational tax forms for accuracy. Is the income, interest, annuity or other income correctly reported? If cost is reported on the 1099 B, is it the correct amount? Make sure your name and your tax ID (Social Security Number) are also correct.
- Take corrective action. If you have not received your information return by the mid February, contact the issuing organization. Also call and start the process to correct any errors you find. Make sure you follow up any correction request in writing.
- Conduct withholding verification. If the supplier withheld any tax on this activity ensure it is noted as well.
- Understand those 1099 Ks. This is the new kid on the 1099 block and was introduced to try to capture sales activity from places like e-bay and Amazon. If you receive one of these, please pay special attention to the information being reported to you and the IRS. These forms are complicated and track payment processing transactions. If not properly understood, you could inadvertently double book income on your business activity.
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