1099s: The Basics
1099s are forms that show how much income you have earned over the year. These forms document income received from sources other than an employer. There are numerous different kinds of 1099s, all for types of alternative income. In this article, we will go over the most common 1099s and why you may receive one.
1099-C: Cancellation of Debt
If you have any debts over $600 canceled you may receive a 1099-C. The canceled debt would include any amount owed to a creditor including principal, fees, interest, penalties, administrative costs, and fines. A qualifying debt cancellation event would be bankruptcy, expiration of the statute of limitations on collection, or an agreement between you and a creditor.
Not all canceled debts will be subject to a 1099. Creditors who are one of the following must file 1099-Cs:
- Financial Institution
- Federal Agency
- Credit Union
- Military Department
- Organization that has significant trade or business of lending money
Once your creditor cancels the debt they can take no further actions to collect your debt. If they do the 1099-C will be invalidated. Another important thing to note about 1099-Cs is that if a creditor discharges multiple lines of credit, all less than $600, they do not need to aggregate them or file a 1099-C. However, the debt cannot be broken up simply for the purpose of avoiding the need to file a 1099.
1099-DIV: Dividends and Distributions
If you earned dividends or received distributions from stocks totaling $10 or more, you will receive a 1099-DIV. This will show how much income you earned from stock dividends and distributions.
1099-G: Certain Government Payments
If you receive certain types of income from federal, state, or local government you may get a 1099-G. The most common reason to receive a 1099-G is if you are collecting unemployment. You must receive $600 or more in unemployment benefits.
Other reasons you may receive a 1099-G include:
- You received a tax refund from the state
- If you were awarded a taxable grant from a government agency
- You received payments from the Department of Agriculture
1099-INT: Interest Income
Having an investment or savings account that accrues interest would result in your receiving a 1099-INT from the company you have your account(s) with. You will receive one only if you earned $10 or more in interest. So, if all you have is a saving account that earns a penny a month, it is unlikely you would receive one of these 1099s.
1099-MISC: Miscellaneous Income
This is the most common type of 1099. It is used when a person who is engaged in business pays another person for services or products in the course of operating their business. The amount paid must be over $600. It includes pay for such things as:
- Non-employee compensation
The most common situation for a 1099-MISC is to pay non-employee income. If you were a contractor or did freelance work you would receive a 1099-MISC from all the companies, you engaged with to provide services to.
1099-R: Distributions from Pensions, Annuities, IRS, etc.
You will receive a 1099-R if you earn $10 or more in distributions from one of the following types of accounts:
- Retirement Plan
- Profit-Sharing Plan
- Individual Retirement Arrangement
- Annuity Pension
- Insurance Contract
1099-S: Proceeds from Real Estate Transactions
If you made $600 or more from the sale of real estate you will receive a 1099-S. However, there are a few exclusions. For example, if you sell your residence for $250,000 or less, you will not receive a 1099-S ($500,000 for a married couple). You also will not be subject to a 1099-S if:
- Your real estate transaction did not constitute a sale or exchange
- Part of the transfer was to satisfy a debt secured by the transferred property
- The sale involves an exempt property
- The sale involves an exempt transferor
1099-SA: Distributions from an HSA, Archer MSA, or Medicare Advantage MSA
If you have a medical or health savings account, you are able to use tax-free money to pay for qualified medical expenses. Your insurance provider must provide you with a 1099-SA to outline your contributions, distributions, earning or excess contributions, and any other transactions regarding your account that are reportable.
This is just a basic overview of 1099s. As you can see, just figuring out why you received a 1099 can be complicated. Do not leave your taxes up to chance, get the help of a qualified tax professional. At Wealth Guardian Tax, we can help you decipher your forms, as well help you find qualifying deductions to help mitigate the tax burden. If you are a business owner and not sure how to complete your 1099s, we can help you with that as well.
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