What is a 1099 Form?
Working as a freelancer or independent contractor offers a host of benefits. Think of flexible working, the ability to set your own hours, and the freedom to choose your customers.
As a freelancer, you'll receive one of these forms in recognition of work done. In 2014, the IRS received around 91 million 1099 forms, compared to 82 million in 2010.
The form acts as an alternative to the W-2 forms received by company employees. But what is a 1099 form? Read on to learn more.
What Is a 1099 Form?
A 1099 form records money given (or paid) to you by a company or a person. That's anyone that's not your employer. They're common among self-employed contractors. Banks might send you a 1099 if they've paid interest on your savings. Did you get a tax refund last year from your state? You might get a 1099 for that too.
It's the payer's responsibility to generate the form. It includes your social security number, or your taxpayer identification number. The payer must send you and the IRS copies of the form.
That means the IRS know about any money you've received. They'll also know if you don't include it on your tax return. Depending on the circumstances, you might not owe taxes on the income. But you should still declare it.
Are There Different Types of 1099?
Yes. They all perform the same task, letting the IRS know what you've earned. But they cover different sources for that income. Here are some of the more common varieties.
Did your mortgage lender cancel some of your mortgage? The IRS considers canceled debt to be income.
Did you sell any securities? Or use a bartering exchange?
Any debt forgiven by a lender becomes taxable income.
Hold shares in a corporation? If it is acquired and you get cash or stock, that's taxable income too.
This covers any dividends you receive.
Did you receive unemployment relief or any tax refunds from your state? This form covers those.
This form covers any interest over $10 earned from a financial institution.
This covers benefits from long-term care insurance.
Did you get over $10 in patronage dividends from a co-op?
This form covers money built in a 529 account towards college tuition. If you solely use the money for education then they're not subject to tax.
Did you close any real estate sales? If you sell your house, the proceeds aren't always taxable. But it's still income to be reported.
Did you take any distributions from health accounts? They're often not taxable, they're usually just for record keeping. If you're paid less than $600 in a financial year by a company, they don't need to send a 1099 form. But you still need to declare the income.
Does all of this sound confusing? Don't worry. Keep records of the all of the income you earn. That way, preparing your tax return will be straightforward. If you need more information about record keeping, get in touch. We can help you get your financial records in order.