THE PURPOSE OF IRS FORM 1099
Form 1099 is intended to help U.S. taxpayers report all of their income so that the IRS can collect the appropriate amount of taxes. The IRS considers Form 1099 an “information return.”
The IRS compares its own data with the information reported on 1099 forms, the income that taxpayers report on their Form 1040–the tax form used for personal federal income tax returns–and with information reported on other forms, such as the W-2 forms–the forms that employers are required to submit to the IRS in order to report all the salaries they pay to employees. The form is used to report payments to independent contractors, rental property income, income from interest and dividends, sales proceeds, and other miscellaneous income.
While there are many types of 1099 forms, they all serve the same purpose; they are used by taxpayers to provide information to the Internal Revenue Service (IRS) about all of the different types of income they receive throughout the year outside of their regular salary. This type of income is also referred to as income from non-employment-related sources. It’s important for taxpayers to report all of their outside income to the IRS in order to avoid an audit. This income may include interest from your bank, dividends from investments, or compensation for freelance work.
Issuers of 1099 forms must send one copy to the IRS and another copy to the taxpayer, or the recipient of these payments. Some issuers send out 1099s by mail, while others provide them electronically.
TYPE OF 1099 FORMS;
Businesses and government agencies use the IRS Form 1099 to report various types of income other than wages, salaries to the Internal Revenue Service (IRS). A variety of 1099 forms are used to report income to the agency, this includes;
FORM 1099-A:
IRS Form 1099-A is used to notify the IRS that a property has been sold or transferred as a result of a foreclosure. The IRS advises lenders to “file Form 1099-A in the year following the calendar year in which you acquire an interest in the property or first know or have reason to know that it has been abandoned.”
Form 1099-A is one of a series of “1099” forms used by the Internal Revenue Service (IRS) to report various non wage payments and transactions. Form 1099-A is typically used when property has been transferred due to foreclosure.
Whenever a property is sold or transferred, the IRS must be informed. In a standard real estate sale, the seller receives Form 1099-S (Proceeds from Real Estate Transactions) to report the sale to the IRS. In the case of a foreclosure, the seller gets Form 1099-A (Acquisition or Abandonment of Secured Property).
Form 1099-A reports details about the sale, including the date of the transfer, the fair market value (FMV) of the property at the time of the transfer, and the loan balance on the date of the transfer. This information helps the seller determine if there is a gain or loss on the sale of the property—and if any capital gains taxes are due.
FORM 1099-B;
Form 1099-B covers income from the sale of several types of securities, as well as some types of bartering that took place through bartering exchanges, usually websites.
Form 1099-B; Proceeds from Broker and Barter Exchange is a federal tax form used by brokerages and barter exchanges to record customers’ gains and losses during a tax year. Individual taxpayers will receive the form from their brokers or barter exchange already filled out. Taxpayers transfer the information from a 1099-B to Form 8949 to calculate their preliminary gains and losses. The result is entered onto Schedule D of their tax return. Form 8949 allows the taxpayer to and the Internal Revenue Service (IRS) to reconcile the amounts that was reported to the taxpayer and the agency on Forms 1099-B or 1099-S (substitute statements) with the amounts the taxpayer report in his or her tax return.
The Information on a 1099-B includes a detailed description of each investment, the purchase date and price, the sale date and price, and the resulting gain or loss. Commissions for these transactions are excluded.
As a taxpayer, your capital losses are subtracted from any capital gains and may be used to reduce the taxable income you report. There are limits to the amount of capital loss that can be deducted each tax year. However, if the capital loss exceeds the limit, the difference may be carried over to the following tax year (or years).
Brokers must submit a 1099-B form to the IRS as well as sending a copy directly to every customer who sold stocks, options, commodities, or other securities during the tax year. The IRS requires submission of the form to serve as a record of a taxpayer’s gains or losses. A company that participates in certain bartering activities with another company may need to file a Form 1099-B. It is used to report changes in capital structure or control of a corporation in which you hold stock.
The form will report the cash received and the fair market value of goods or services received or any trade credits received. Taxpayers may be required to report the receipt of gains made during the bartering activity. Reportable gains can be in the form of cash, property, or stock.
Form 1099-DIV: Dividends and Distributions;
Form 1099-DIV is used by banks and other financial institutions to report dividends and other distributions to taxpayers and the Internal Revenue Service (IRS). If you own a stock or a mutual fund that pays dividends, you should receive this form.
Form 1099-INT: Interest Income;
Form 1099-INT is a type of the IRS Form 1099 that is used to report interest income. You should receive a 1099-INT form if you have a checking, savings, or another bank account that earns interest. This form includes a detailed breakdown of all types of interest income and related expenses.
Form 1099-MISC: Miscellaneous Income;
You should receive this form if you worked for someone as an independent contractor. If you’re self-employed and have several clients, you should receive a 1099-MISC from each client who paid you $600 or more.
Form 1099-R;
Form 1099-R is used to report the distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. If you received $10 or more from your IRA or another source of retirement income, you should receive a 1099-R.