What Are 1099 Forms and Why You Need To Be Careful About Them!
Simply put, a 1099 form is a type of form that’s used to list your income throughout the year minus wages. If you have any outside income other than your salary, it’s required that you file it with the IRC because if you don’t, you can easily land on their watch list!
If you are a salaried employee working in a company, a 1099 form is similar to your W-2 which is a document that summarizes your annual earnings. While a W-2 lists your earning within an organisation, a 1099 form lists all your income outside it, be it in the form of dividends from investments, interest on your bank balance, any form of compensation or earnings from any kind of freelance work.
You need to be careful about when you receive a 1099 form because whenever you get your hands on a 1099 form, the most likely scenario is that IRC has a copy of that form as well. The sole 1099 filing requirement is that you report the listed income to the IRC as soon as possible. And failure to report the listed income on your 1099 form can easily land you in trouble with adverse repercussions.
So, it’s a no brainer that you need to file your 1099 form as soon as possible, but there are many types of 1099 forms that you may receive in your life and having knowledge of which is of utmost importance if you need to stay out of trouble in the near future because there is a chance that you may receive more than one. Mainly, there are some common types of 1099 forms that you may get issued with, which are –
1099 miscellaneous tax form is a type of 1099 form that you may receive to report all the miscellaneous income earned in the fiscal year. Income received from freelance work or self employment are generally included in this type of form.
If you have invested in some stocks that generate a certain amount of income in the form of dividends, you are required to report the income generated from those stocks in the 1099-DIV form.
Cancellation of debt is reported via this form – 1099-C. In the eyes of the law, cancellation of debt is considered as income and you are liable to pay taxes on your income.
Use this form to report the interest earned on your savings accounts with various banking institutions. Interests from savings is a form of ordinary income and you’ll pay the same amount as taxes as you’d do on a regular paycheck.
All the income generated from real estate transactions are reported to the IRS using the 1099-S form. This form will educate you about what type of revenue generated from real estate transactions need to be paid taxes on.
According to the law, you are required to pay taxes on the income received from your retirement plans as the withdrawals made on those plans are treated as regular income. Use this form to list distributions from retirement accounts such as 401(K)’s, pensions, IRA’s and annuities.
This is a relatively new type of 1099 form issued mostly by banks and other payment processors such as PayPal to report gross receipts of payments. So, those who use PayPal, accept credit cards, and sell on eBay will have their income reported, officially by payment processors, to the IRS.