1099-MISC – The 1099-MISC, arguably the most common 1099, was created to cover all sorts of miscellaneous income such as freelancer income and work as an independent contractor. If you’ve received any sort of income over $600 form any source, be looking for a 1099-MISC in the mail leading up to April.

1099-INT – For those of you who’ve earned income from interest, such as investment or savings accounts, you will be using the 1099-INT to report this income to the IRS. This form details exactly how much interest income you’ve earned.

1099-S – Another 1099 that seems to be gaining in popularity as of late is the 1099-S form, which details real estate transactions. This form is pretty straight forward, and you should receive the 1099-S from your broker explaining your income from your real estate deals.

1099-C – The 1099-C reports any of your debts that were cancelled in the past year. As an example, if your credit card company settled the debt that you owed by forgiving $3000, then you would be required to report that amount as income on your tax return.

1099-R – For those of you who have been planning for the future, the 1099-R will find it’s way into your mailbox if you have taken money out of your retirement account or pension plan. Yes, those withdrawals are likely considered income.

1099-DIV – One of the last more “common” 1099 Forms is the 1099-DIV, which will be important to you if you have earned income based on dividends and distributions from your stock portfolio.

A Wise Approach

The overall purpose of the 1099 is to make sure that you, your source of income, and the IRS are all in agreement about your earnings. For a complete, comprehensive, and expert look at all 20+ 1099s, you can talk to a Turbo Tax professional about which forms you should be expecting.

Remember that all your sources of income will not arrive on one 1099 form.

A new tax law took effect on Jan. 1, 2011 as a part of the Emergency Economic Stabilization Act of 2008, and it requires brokerages to report certain cost basis information to the IRS. This is a good thing for investors because it makes tax preparation easier and places more responsibility on your brokerage to accurately track your cost basis.This tax legislation impacts your brokerage account in a number of ways, so check with your brokerage to find out more. For example, Scottrade streamlined their information into an easy-to-use online Cost Basis Education.

What is Cost Basis?

Let’s back up for a moment and define cost basis. Cost basis is the original value of an asset that is used to calculate gains and losses for tax purposes. For most positions, your cost basis will be the purchase price plus any commissions, and it will be adjusted for wash sales, corporate actions and/or return of capital during the time you hold it.

Cost Basis Reporting

The new legislation rolls out in phases. This tax year, your brokerage will report to the IRS the cost basis for all equities you acquired on or after Jan. 1, 2011. These are called “covered” positions. All your other investments, including equities purchased before 2011, are considered “non-covered” positions. Equities include stocks, American Depositary Receipts (ADRs) and Real Estate Investment Trusts (REITs).

Over the next two years, other types of investments will be covered:

Where Cost Basis is Reported

Your cost basis information will appear on your Form 1099. Keep in mind that not all brokerage accounts will receive a Form 1099. To learn more about the different tax forms generated for brokerage accounts, check out last month’s blog, What to Expect from Your Brokerage at Tax Time .

 Capital Gains & Losses

Cost basis information is used by your brokerage and the IRS to calculate capital gains or losses when you close a position. Some brokerages, like Scottrade, allow you to choose how your capital gains and losses are calculated.

For example, Scottrade’s default calculation method is first-in, first-out (FIFO), which means the first shares you acquired will be the first sold. Think of it like the milk aisle at a large grocery store – the shelf is loaded back-to-front from the refrigerated room in back, so the first gallon of milk that the grocer slides into the shelf is the first one a customer sees. The first gallon of milk put in is the first gallon of milk that is taken out.

Shares of stock can work the same way. Here’s an example:

Monday:         Buy 50 shares XYZ @ $9 ($450 total)

Wednesday:   Buy 50 shares XYZ @ $11 ($550 total)

Thursday:      Buy 50 shares XYZ @ $10 ($500 total)

Friday:            Sell 50 shares XYZ @ $10 (500 total)

With FIFO, your total realized gain would be $50. The first shares you bought (50 @ $9 on Monday) would be the first shares sold. Subtract your investment of $450 from your sale price of $500, and you gained $50 on the transaction.

FIFO is one of several calculation methods your brokerage can use. Check with your brokerage to find out more about the methods available and how to set a tax strategy in your account.

To learn more about cost basis, visit Scottrade’s Cost Basis Education.

Scottrade does not provide tax advice. The material provided in this article is for informational purposes only and Scottrade is not responsible for any errors or omissions. Please consult your tax software or tax/legal advisor(s) for questions concerning your personal tax or financial situation.

Jaci Devine is a free-lance writer with experience in the financial services industry who specializes in investment education.

What to Expect from Your Brokerage at Tax Time

As the number of envelopes labeled “Important Tax Information” pile up in your mailbox, it’s easy to get overwhelmed. Rather than getting discouraged this year, take control of your taxes. When you know what to expect in those envelopes, you can make sure you get the information you need.

Scottrade offers customers several in-person and online educational opportunities to learn more about their tax forms, and the information presented is useful for all investors, no matter which brokerage you’re with.

Form 1099

If you have one or more brokerage accounts, you may be receiving a variety of forms. The most common one is your Form 1099. At Scottrade, the following types of brokerage accounts will typically receive the Form 1099:

• Individual or Joint Brokerage Accounts
• Retirement Accounts (IRAs and Roth IRAs)
• Trusts and Estate Accounts
• Investment Club Accounts
• Partnership Accounts
• Sole Proprietorship and LLC Partnership Accounts
• Custodian Accounts

Reportable Transactions

Keep in mind that even if you have one of these accounts, you will only be issued a Form 1099 if you had reportable transactions in your account in 2011. For non-IRA accounts, reportable transactions include:

• Closing a tax lot (selling a long position or buying to close a short position)
• Interest and dividends
• Taxable corporate actions (e.g., tenders, mergers, cash in lieu of fractional shares)
• Royalty trust income
• Brokered CD sales, and CD redemptions if the certificate matured more than one year after it was issued
• Principal interest on unit trusts and corporate bonds
• Original issue discounts (OID)
• Bond redemptions

If you had one of these reportable transactions in your account, but the aggregate proceeds were less than $10, the proceeds are not reportable, and your brokerage typically will not issue you a Form 1099.

Composite 1099

The Form 1099 is actually a composite form made up of several subsets that each address a specific type of reportable information.

Here is a breakdown of the components of the Composite 1099:

Retirement & Education Savings Accounts

If you have an individual retirement account (IRA), a Roth IRA or a Coverdell Education Savings Account, you will be issued different variations of the Form 1099.

IRAs and Roth IRAs:

• Form 1099-R – Reports distributions, including conversions and recharacterizations
• Form 5498 – Reports contributions, fair market value (FMV)as of Dec. 31, 2011, and required minimum distributions

Coverdell ESAs:

• Form 1099-Q – Reports distributions, transfers out and fair market value as of Dec. 31, 2011
• Form 5498ESA – Reports contributions and transfers in

Mailing Dates

Even though you may want to get an early start on your taxes, keep in mind that brokerages mail your 1099s and other forms on different schedules, depending on IRS mailing dates and information availability. Check with your brokerage for their tax form mailing calendar.

Take Control

When those tax forms start to pile up, don’t just set them aside this year. Armed with the right information about what you should receive from your brokerage firm, you can take control of your taxes and get the information you need.

To learn more brokerage-specific information about your taxes, visit Scottrade’s Tax Guide.

Scottrade does not provide tax advice. The material provided in this article is for informational purposes only and Scottrade is not responsible for any errors or omissions. Please consult your tax software or tax or legal advisor(s) for questions concerning your personal tax or financial situation.

Jaci Devine is a free-lance writer with experience in the financial services industry who specializes in investment education.

You should keep your 1099 with your tax records and reconcile it with your own records. Additionally, realize that, even if you don’t receive a 1099 from a payer, you are still responsible for reporting the income to the IRS. Payers are supposed to send a copy of the 1099 to the IRS, so even if you are overlooked, there is a good chance that the IRS has a copy of the 1099.  You should receive your 1099s by January 31.  If you don’t receive your 1099s by then, you should call the payer and request it.  In addition, if your 1099s are incorrect you should also request that the payer issue a corrected 1099.  If they still do not correct the 1099, you should notify the IRS and also follow our instructions in “Missing Your W-2 Form, Corrected W-2s, and Multiple W-2s“.

Types of 1099s

The 1099 series of forms have different versions, each for a variety of purposes. The 1099-INT form is used to report interest income. Your bank or other financial institution might issue a 1099-INT form if you received interest income from a CD, or from a deposit account. If you have received debt forgiveness on a loan, this is considered income, and you will be issued a 1099-C. Income proceeds from real estate transactions make use of the 1099-S.

Several other 1099 forms exist for transactions such as Social Security benefits, distributions from cooperatives, government payments and more. However, one of the most common 1099 forms that you are likely to see is the 1099-MISC. This is the form that independent contractors receive from those who have paid them. If you work as a freelancer, you will receive a 1099-MISC form showing what you were paid. However, if a payer hasn’t paid you at least $600 in the past year, you might not get a 1099-MISC – but you still have to report your income.  For a comprehensive list of types of 1099s, click on our “What is a 1099 Form?” blog post.

The New 1099-K

Of interest to many people right now is the new 1099-K form. This new form will be issued, starting with sales in 2011, by banks and other payment processors, to report gross receipts of payments. This includes payments received via PayPal. So, those who use PayPal, accept credit cards, and sell on eBay will have their income reported, officially by payment processors, to the IRS.

It is worth noting, though, that not everyone in this situation will be hit with the new paperwork. If your total payment transactions are less than $20,000, and there are less than 200 transactions, they won’t have to be reported on the 1099-K. Technically, you should be reporting the income anyway, but this move is meant to help better enforce it.

Beware double reporting. You will need to make sure you have good records, though. Although the new reporting requirements shift the reporting responsibility from the customers to the merchants and banks, customers may not make the distinction and could report the same transactions twice. Also, realize that payment processors and other 1099-K reporters won’t subtract out charge-backs and fees – they only report gross receipts.

Instead of relying on 1099s for information about your income, you should keep good records. That way, if the IRS asks for information on the way you offset your income with expenses, or the double reporting issue, you have what you need to back up your position. As part of your due diligence, you should always keep a reconciled bank account for your business where you can track your income and expenses.  In the end, you are responsible for paying your taxes based on what you were paid. If you underpay, the IRS will find out. If you overpay, the IRS may never know!

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So this means a potential delay of up to two weeks. But don’t fret. I’d suggest you start completing your return with the information you do have. And not all financial institutions will push the deadline. Furthermore, the information from your last statement or online statement is likely to be accurate. Use this information until you receive the Form 1099. When you enter the preliminary information in TurboTax, bookmark the item with the new “flags” feature. That way if there is any change, TurboTax enables you to easily make the change by clicking on each flag.

When it comes to filing your return, select electronic filing. You’ll get your refund in as little as 10 days versus 4-6 weeks paper filing it. And if you one of the unlucky ones having to pay, well then you’re in no rush to file and this blog post is probably irrelevant to you anyway!

A new notice clarifies that, for calendar year 2009, filers of Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, Form 1099-S, Proceeds From Real Estate Transactions, and certain information on Form 1099-MISC, Miscellaneous Income, have until Feb. 16, 2010, to report both the information required on these forms and certain other tax information furnished on the same date.