It’s that time of year again, when we are all knee deep in papers, trying to get things together for our tax accountant. Financial statements, W-2s, official acknowledgements from charitable organizations, the list goes on. Probably at the top of the list are 1099s, your official record of non-W-2 income received for the year. So, what are some key points to keep in mind about 1099s as you navigate through your taxes?
- You can’t hide. Perhaps the most important thing to remember is that for each 1099 you receive, the IRS gets a copy too. So be sure to report all income from each 1099, even if it’s a 1099 from a tiny account at a bank somewhere on which you earned $10 of interest income. One important thing to note, Charles Schwab & Co., our primary custodian, only sends your 1099 to the account address of record, not to all parties associated with an account, such as your accountant. If you would like others to also receive a copy of your 1099, just let us know, and we will have a copy securely sent to the designated recipient(s).
- Time is not on your side. Just because you haven’t received a 1099 in time for tax season doesn’t mean you don’t have to report income. Whether it got lost in the mail, accidentally tossed or didn’t come because the company reporting didn’t get it out in time (it happens, typically resulting in a penalty for the company), you may not receive some 1099s before your tax filing deadline. It does not matter to the IRS. Income must be reported, 1099 or no 1099.
- Keep your info up-to-date. Related to the points above, make sure your mailing address is up to date with all payers. The IRS will still receive information based on your taxpayer ID number, even if your 1099 is languishing in a big return to sender box somewhere. If you received a 1099 from a payer last year, look for one this year. If you don’t find it and think it is possible you had income from that source, contact the payer and ask for a replacement.
- Mistakes and changes do happen. It’s not uncommon for there to be corrections or amendments to the original 1099. Although it can be confusing and frustrating at times, the issuer has no choice and must send amendments and corrections to both the recipient and the IRS. If you have already filed and the change impacts your taxes, be sure to consult with your tax accountant regarding your course of action.
- Not all 1099s are alike. 1099s come in a variety of “flavors” depending on the source of income. The mysterious letters after the 1099 hyphen tell you and the government what type of income is being reported. The primary ones are shown below, but just to add to the mix, there are a plethora of others, ranging from 1099-A (acquisition or abandonment of secured property) to 1099-SA (HSA/MSA distributions) and almost everywhere in between.
|Most Common 1099 Forms
|Miscellaneous income – income that doesn’t fit into any of the other 1099 categories; covering such items as royalties/broker payments in place of dividends or interest, freelance income, prize or award money, fishing boat proceeds and other esoteric inflows of cash
|Distributions from pensions, IRA, profit-sharing or retirement plans, disability payments, charitable gift annuities
|Unemployment compensation, tax refunds and certain other government payments
|Social Security benefits received
Tax season can be fraught with the hunt for information, the stress of deadlines and questions about how to be most efficient regarding taxes. Klingenstein Fields Advisors welcomes the opportunity to meet with you and discuss tax planning strategies that may be appropriate for your unique circumstances.