Which 1099 Tax Forms concern you?
It's tax time again and you must be sure to receive all the
necessary forms. What is a 1099 tax form and who gets one? A Tax
Form 1099 is used to report income other than wages, salaries
and tips. Here of late, this term is used more and more
frequently as many employers are opting to use contract labor
versus hiring employees, who can turn out to be quite expensive
when you factor in the insurance, payroll taxes, and other
possible liability. If you had an independent contractor perform
$600 more of services to you or your business, you are required
by law to complete and deliver a 1099 form to that person or
business. This article will take a look at the different 1099
tax forms, their purpose, who can receive one, and why.
The 1099 tax forms, if you are the recipient, should be
furnished to you by January 31, 2006, and must be furnished and
filed by the company furnishing the form no later than February
28, 2006. But which 1099 form will you receive?
If you are classified as an independent contractor (i.e.
attorney, guest speaker, performer, physician, rent, etc.), or
you receive income that is classified as non-employee income, or
miscellaneous income (you were paid $600 or more) you will
receive what is known as a 1099-Misc.; these are the information
returns most often received for contract for-hire work, leased
workers, or general contractor payments for which there is not a
direct sale as a merchant to a consumer. The other most often
used 1099 tax form would come as a 1099-Int; this is a 1099
received for interest income purposes; whether the income be
from a bank or any lending institution, or from the sale of a
seller financed mortgage, the recipient of any income from
interest will receive a 1099-Int. You would receive a statement
that summarizes your interest income for that year. This form is
also used to report other tax items related to your interest
income such as early withdrawal penalties, federal tax withheld
and foreign tax paid. A close relative of the 1009-Int is the
1099-OID. This is an information return provided when you
receive an original issue discount, usually from transactions
related to mortgages served by the Federal Housing Authority.
The 1099-Div tax form is used often for investors. This tax form
is sent to investors by brokers, mutual funds or the investment
company. The form is a record of all taxable gains and dividends
paid to an investor. The amounts that are stated on the form
represent amounts the fund companies are attributing to each
investor's investment return for the year. The amounts on the
1099-Div could contain ordinary dividends, total capital gains,
qualified dividends, foreign tax paid, federal income tax
withheld and foreign source income. Another 1099 can come as a
1099-B for barter exchange transactions. What does this mean? It
means that instead of monetary payment, you received a bartered
form of payment, an exchange of something other than money, with
value attached in order to pay for a service. Other less used
1099's are 1099-A, 1099-C, 1099-CAP, 1099-LTC, 1099-Q, 1099-R,
and 1099-SA; the R, Q and SA are for retirement and social
security payments, and are received by many retired individuals.
The payments from IRAs, MSAs, Coverdell ESAs, and HSAs are
reported on these 1099s. The 1099-A is received is there has
been an acquisition of secured property, or an abandonment of
secured property.
1099-C is received if there is a cancellation of debt, as from a
bankruptcy proceeding, credit card default, or other failure of
a maker to make good on a debt that the lender or seller can use
as a tax deduction. The 1099-CAP is a 1099 used to report
significant changes in corporate control and capital structure.
What does this mean in laymen's terms? If you and several other
individuals are in business together, as an incorporated entity,
and 3 of you buyout another individual, you will be required to
furnish that individual with a 1099CAP so that the individual
reports any income or gain from the capital sale of stock.
A 1099 tax form that we've not seen very much until recently,
but one that I'm sure we'll see much more of in the not too
distant future is the 1099-LTC. Long-term care and accelerated
death benefits are filed on this 1099; with a larger segment of
our population aging, this segment also known as the "baby
boomers" will make more use of long-term care insurance and
payouts, and many of them will receive these types of 1099s.
Although these are most often forms of taxable income to the
recipient, this is not always a steadfast rule. For many of the
older citizens, for individuals receiving the tax returns as
part of a discounted program through the government, and for
certain other situations, these are only information tax returns
that do not result in added income tax liability. For the rest
of us, however, a 1099 tax form usually means we have increased
our income tax liability.