Preparing Income Taxes - Including the Many Different Kinds of IRS Form 1099

There are two classes of income information that tax authorities like the Internal Revenue Service (IRS) use to track income; IRS Form W-2 and IRS Form 1099. The IRS W-2 family of forms report wages, salaries, tips and, most important, various federal, state, and voluntary tax withholdings. There are however, many forms of compensation and fund distribution that are not considered wages or salary. The large number of different 1099 forms are used to report all this tax-relevant information. Attach a copy of IRS Form 1099 to your tax return when the form shows any taxes withheld from reported compensation or distributions. Here is a list of some of the more common information documents:

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Income classified as non-employee or miscellaneous revenue, or any form of compensation paid to independent contractors (like consultants, home care workers, artists, etc.) is reported on a 1099-MISC, Miscellaneous Income. These forms also report money paid for contract-for-hire work, to leased workers, or general contractor payments. Compensation reported on this IRS form will often have no taxes withheld.

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Form 1099-INT, Interest Income is used when more than (or at least 0 of interest paid in the course of a business activity) of interest is reported for income purposes, when federal taxes are withheld from funds and when foreign taxes are paid. It is probably the most common 1099 form received by individual taxpayers. It is also reports taxable income related to interest from, for example savings accounts and penalties related to early withdrawal of funds from IRA. Box 2 shows interest or principal forfeited because of early withdrawal penalty. Box 4 shows the amount of federal tax withheld. Box 3 shows interest received from US Saving Bonds, Treasury bills, notes, or bonds.

Similar to a Form 1099-INT, Form 1099-DIV, Dividends and Distributions, is provided by investment, mutual funds, and brokerage companies, to report taxable income and any tax withholdings from ordinary and qualified dividends paid to the holder of record during the tax year. The 1099-DIV also reports capital gains, foreign tax, investment expenses, and liquidation distributions. When a barter exchange is substituted for monetary payment in a financial transaction, the value of the payment for the goods or services is reported on a Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. Oftentimes a broker's Statement of Account will include all three information forms in one document.

Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. reports distributions of or more from an individual retirement arrangements (IRAs) or other annuity, pension, or profit-sharing plan. See IRS Form 5498, IRA Contribution Information if you have made contributions to individual retirement arrangements (IRAs). In 2002 the "special" education IRA was renamed a Coverdell Education Savings Account (ESA). Distributions are reported on the Form 1099-Q, Payments from Qualified Education Programs. See IRS Form 5498-ESA, Coverdell ESA Contribution Information, if you maintain a Coverdell Education Savings Account (ESA).

Distributions from tax deductible health (medical) savings accounts (HAS) used for medical expenses are reported on Form 1099-SA, Distributions From an HAS, Archer MSA, or Medicare Advantage MSA. Code "W" in Box 12a on the form indicates distributions from Health Savings Accounts and Archer Medical Savings Accounts. IRS Form 1099-LTC, Long-Term and Accelerated Death Benefits show gross long-term care benefits and accelerated death benefits paid. Use IRS Form 8853, Archer MSAs and Long-Term Care Insurance Contracts to report these distributions.

Reporting debt income generated from the cancellation of a taxpayer's recourse debt is very important and can have significant effects on your tax liability. Form 1099-A, Acquisition or Abandonment of Secured Property, reports information arising from foreclosure, repossession, or an abandonment of secured property. These financial acts are treated as either the exchange or sale of property. They can result in a capital gain and taxable income. A Form 1099-C, Cancellation of Debt document resulting from, for example, bankruptcy or cancellation of consumer debt, can also show potentially taxable income from the forgiven debt.

Form 1099-OID, Original Issue Discount is issued when an original issue discount on US Treasury obligations is received on maturation of the issued paper, usually from transactions related to mortgages served by the Federal Housing Authority. Box 6 shows the amount of the discount received on US Treasury obligations. Box 4 shows the amount of federal tax withheld. Any early withdrawal penalty and investment expenses may also be indicated on the information form.

Preparing Income Taxes - Including the Many Different Kinds of IRS Form 1099

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Preparing Income Taxes - When You Withdraw Retirement Funds "Before Their Time"

There are a variety of qualified savings/retirement fund plans available to taxpayers. Some like traditional and Roth Individual Retirement Arrangements (IRAs) are specifically designed for a taxpayer's retirement years. Others, like a health (or medical) savings accounts (HSA/MSA) and (Coverdell) Education Savings Accounts (ESA) are established for specialized needs such as medical or educational expenses respectively. According to the Internal Revenue Service (IRS), you can contribute or add money to these funds oftentimes on a tax-deferred basis. These qualified contributions typically have some incentivized tax treatment; they either reduce taxable income (like an IRA) or provide a tax credit (like a Saver's Tax Credit). However, there are strict rules regarding the withdrawal or distribution of these same funds. You might receive preferential tax treatment if you make a contributions to these funds but be warned; you could be taxed most likely at your marginally income tax rate AND suffer "early withdrawal" penalties if you drawn down these funds "before their time" or for any reasons other than for those for which they were originally intended.

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IRS Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts is an eight-part tax form that calculates additional taxes on early distribution, distributions from ESAs, IRAs, and HSAs. It also reports additional taxes on excess accumulations in qualified retirement plans when contributions exceeded IRS rules. If you receive, for example, a IRS Form 1099-R and Box 7 shows a code 1 (early distribution without exception) or code 2 (early distribution with exceptions), you might be subject to an additional 10% tax penalty in addition to the income taxes levied on the additional income resulting from the distribution. A Form 1099-INT also reports an early withdrawal penalty amount. For example, if you receive a Form 1099-R with code 1 in Box 7, there are no exceptions to the early withdrawal penalty and you will be charged a 10% penalty that will be computed in Part I of IRS Form 5329. You also file Form 5329 to report regular, or rollover conversions from one type of qualified retirement fund to another.

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Tax and financial implications of what might appear to be simple transfers of "your money" can be VERY complicated especially if they violate IRS rulings and regulations. Consult a practiced tax professional if possible BEFORE you take any financial action. There are ways to avoid penalty fees under qualifying circumstances. If you have received distributions from any of these plans and an IRS Form 1099-R, have a tax professional review your tax returns.

Preparing Income Taxes - When You Withdraw Retirement Funds "Before Their Time"

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