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.

Tax Form Checklist

When filing taxes, it is important to make sure that you have all the documents that you need. The good news is that for simple tax filers there isn’t a whole lot that you need. If your taxes are relatively simple to prepare, here are the documents that you should gather in order to be properly prepared:

• W-2: Gather up any W-2 forms. This is the form your employer issues to you in order to let you know how much you made during the year. This form also includes how much money was withheld in taxes, as well as any amount of money withheld for other purposes.

• 1099: You might have 1099 forms if you did work on the side. Also, there are different versions of the 1099 form for interest earnings, dividend earnings, and other sources of income that you need to report.

• Other income information: Don’t forget about other income you might receive, such as alimony.

• 1098: If you have been paying mortgage interest, this is the form that shows the amount of mortgage interest you paid and can deduct.  It may also show property taxes you paid and can deduct.

• 1098-E: Details your tax deductible student loan interest payments paid over $600.  If you paid less than $600 you may not receive a 1098-T, but don’t forget your interest.  You can still deduct it.

• 1098-T:  Details tax deductible eligible education costs you paid for higher education.

• Supporting information for tax credits: If you are eligible for tax credits, you will need to get information from supporting documents. Whether it’s a credit for installing solar panels, or information needed to claim a dependent care credit, you will need to refer to related documents. For example, you need the tax ID number for facilities that provide dependent care.

• Social Security numbers for family members: In order to file your taxes, you need your social security number. You also need the correct social security numbers for your spouse, as well as for anyone you are claiming as a dependent.  This information is necessary if you want to take the Earned Income Tax Credit and other available tax credits for dependents.

• Contribution information: Don’t forget information about retirement plan contributions that may be deductible.  Also, if your state offers you a tax benefit for contributing to a 529 plan, you’ll want that for your state taxes (it doesn’t apply for your federal taxes).

• Receipts: Charitable contributions require receipts. If you are itemizing and want to deduct charitable contributions, or if you have other tax deductible expenses, you need proper receipts to fill out information when preparing your tax return.  You don’t have to include these receipts with you tax return, but you need to keep them for your records to prove your donations or other expenses.

The basic rule of thumb for documentation is: If you claim it on your tax return, get the documentation to back it up.

If you follow this checklist and prepare your taxes using TurboTax, preparing your tax return will be even easier.

The Most Important Tax Form – 1040s

When you submit your taxes to the IRS, you’ll have completed a 1040 form. There are three different types of 1040s, depending on your financial situation.

• 1040 - This is the standard income tax return and if you have itemized deductions, then is the form you’ll be filing .
• 1040A - This form is for those who are taking the standard deduction and meet other guidelines.
• 1040EZ - A 1040EZ is the simplest to fill out and is for the most straight forward of returns.

Software like TurboTax an automatically file the correct form for you as you go through the process.

Informational Forms – W2s and 1099s

The benefits of having uniform tax forms is that it standardizes how the IRS gets its information and improves its efficiency. The two big forms that you should’ve already received to help you fill out your 1040 form are W2s and 1099s. Your employ sends out W2s for all your income last year with them which goes into line 7 of your 1040. It also records the federal income, social security, and Medicare tax withheld from your pay which has a tremendous effect in calculating your tax obligations. If you’ve also elected to participate in your company’s 401(k), your contributions are recorded on your W2 as well, lowering your income that can be taxed. 1099 forms are for other sources of income such as  independent contractors income, unearned income like dividends and interest over the course of the year, and HSA distributions. The 1099s most taxpayers are familiar with are 1099-INT, 1099-DIV, and 1099-MISC. Since I’m self-employed, I keep track of what 1099s to expect from my contracts. You may also be required to fill out scheduled forms. These forms are meant to gather more information to determine your tax obligations for the past year.

• Schedule A - Itemized Deductions
• Schedule B - Interest and Dividends
• Schedule C - Profit/Loss from Business

Being as accurate as possible is for your own benefit and will make the process much easier.

Thoughts on Tax Forms

While there are certainly more forms that you may encounter when filing your income taxes, those 3 are the most commonly seen. I’ve used turboTax for the last few years and found it extremely helpful with handling all of our tax forms. How about you? When you filed your taxes last year, what forms did you have to fill out?

Here’s what to do now:

Folders, Folders, Folders!

As all of your forms start to trickle in (they must be mailed to you by January 31 so be on the lookout!), you need to have a record keeping system in place. Specifically, a filing system, and for many of this, that means FOLDERS! Set up different folders for each of the following: INCOME (This folder should include things like your W2’s from all your employers and any interest or dividend income from investments -1099-DIV or 1099-INT), DEDUCTIONS (This folder should include all of your deductions for property taxes, charitable giving and mortgage interest), and RECEIPTS (This folder should include all receipts eligible for deductions). You could even have a separate folder labeled HOMEOWNER for things like your mortgage interest form (Form 1098), and sale of your home (Form 1099-S) as well as a MISCELLANEOUS folder for things like your tuition statement (Form 1098-T), and state and local income tax refunds (Form 1099-G).

Review all your tax documents

Just because you have your filing system established doesn’t mean you should simply throw your forms into the folders and forget about it.  Review each document as it comes in.  Is everything correct? Any discrepancies? Know that getting a corrected 1099 or W-2 can take a while, so don’t delay if there are errors.

Take advantage of all credits and deductions

Chances are, you’re confused. After all, the last-minute compromise in the umpteenth hour to extend the Bush tax cuts included a bunch of other tax changes. Plus, a lot of 2009 tax credits expired. Just make sure you know the new 2010 tax rules do that you can take advantage of every break you’re eligible for, from the Energy And Appliance Tax Credit to the American Opportunity Tax Credit. This is where a program like TurboTax (used by 20 million Americans) can really help.  Plus, it will help you avoid making simple math mistakes that could be costly.

File early!

Once everything is together and you’re ready to file, file electronically.  E-filing is the quickest way to get your refund–it’s yours in as few as 14 days; 10 if you use direct deposit. Futhermore, electronic returns have 13% fewer mistakes than paper returns.

Check with your state and local authorities to see the requirements to form a business, as well as what type of license, permit, etc. you need to operate there. Each entity type should apply to get a Employer Identification Number (EIN) from the IRS using Form SS-4. You should also check with your state about getting a state tax ID.

Sole Proprietor

In most cases, new businesses operate as a sole proprietorship. When tax time rolls around, if you are organized as a sole proprietor, you will need to complete Schedule C* of the Form 1040 to account for your business profit or loss. Note that if you have $5,000 or less in expenses you may be able to file the Schedule C-EZ instead. The profit or loss from the Schedule C is then transferred to page 1 of the Form 1040, where it is included with your taxable income.

*If your small business income is from rents or royalties, you will use Schedule E. If it’s farming income, you will use Schedule F.

It’s important to keep accurate records of your business income and expenses, as you will be required to report these things on the Schedule C. For more information on starting a business and filing with a Schedule C, see Publication 334, Tax Guide for Small Business. This includes information on EINs, record-keeping, tax year, accounting method, and more.

Partnership, S Corporation, and C Corporation

If you are organized as a Partnership, you file the strictly informational Form 1065. A Schedule K-1 is produced for each partner and then you use that K-1 to determine the income that is reported on your personal Form 1040.

If you are organized as a C Corporation or S Corporation, you should file a Form 1120 or Form 1120S, respectively.

To understand more, be sure to check out these instructions from the IRS: IRS Forms for Partnerships and IRS Forms for Corporations.

Limited Liability Company (LLC)

Some business owners choose to organize under the popular LLC structure. LLCs have a lot of flexibility when it comes to filing taxes. They can be taxed like a sole proprietor (if they have only one member), partnership, or even like a corporation (C or S). If you are the only member of your LLC, then you will be automatically treated like a sole proprietor. Most multiple member LLCs will be treated like a partnership. If you decide you would like to be taxed in a different manner than these defaults, then you need to file Form 8832 to elect another classification. Note that if you intend to be classified as an S Corporation, you need to complete Form 2553. Once you determine your business structure for tax purposes, just use the recommended forms above to file. To understand more, be sure to check out these instructions from the IRS: IRS Forms for LLCs.

When These Forms are Due

Form 1065 and Form 1040 Schedule C must be filed by April, 15th. Forms 1120, 1120A, and 1120S are due a month earlier, by the March 15th deadline.

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.

6)  What Paperwork Do I Need In Order to File My Return?

No matter how many commercials you see, you can’t file your tax return with just your pay stub.  Trust me on this.  Don’t try it.  You need, at the very least, your Form W-2 (which must be provided to you by your employer before January 31st).

If you have any savings accounts, you’ll need a 1099-INT from your bank.  This will tell you the interest you earned (which is taxable).  You can also get this info on your year end bank statement.

If you paid interest on a student loan you’ll receive a 1098-E that shows the amount of interest paid (use this to deduct and save some cash!).

If you paid tuition for courses during the year, you’ll receive a 1098-T.

If you received unemployment income, you’ll get a 1099-G (yes, unfortunately, unemployment income is taxable).

Before you sit down to complete your return, try to have these forms with you (if you need them all).  It’ll make your life a lot easier and you’ll get done a lot faster.  Look at it like an open book test.  You don’t have to have it all memorized before, but the more info you have in front of you, the easier it’ll be.

For most people eager to get their taxes filed, February 1 has become sort of like Christmas.  The only difference being that instead of Santa Claus shimmying down the chimney with a bag of toys, a mail carrier brings little gifts in the form of W-2s, 1098s and various 1099s (who said grown-ups don’t have any fun?).  While we anxiously await the arrival of our various financial statements, it may be helpful to know that some of the forms may be delayed this year.  Take heart, it’s not necessarily bad news.

Why the change?  Last year, when the Congressional bailout was passed, a provision was added that gave mutual-fund corporations, as well as brokerage firms, additional time to distribute tax forms (especially Form 1099-B) that are used to report earnings from brokers’ transactions.  The deadline has been pushed back from the usual January 31st to February 15th.  And, to add some confusion to an already confusing situation, February 15th falls on a Sunday this year and the 16th is President’s Day, so brokers technically have until February 17th.

But wait, there’s more!  The February 17th deadline also pertains to other tax information that customers receive from their brokers.  Interests and dividends on a combined year-end statement could be affected too.

So, what’s the silver lining?  Well, the change was designed to give brokers more time to make sure the year end statements they provide their customers are accurate.  According to the IRS, up to 20% of the 1099s brokers send to their clients end up getting amended.  Usually, the clients have already filed their taxes by the time they get the amended 1099s and that means they have to amend their returns (and even with TurboTax, amending a return is no fun).  So the thinking is—give the brokers more time to compile accurate info, and returns should be more accurate (I guess you could call this trickle down taxes).  I guess we should take a few things from this.

1)    The 1099-Bs that show up later this year should be more accurate and therefore should make it easier for us to file.

2)    Not all year end forms are affected—W-2s, 1098s and other 1099s still have a Jan. 31st deadline.

3)    Stop bugging your mail carrier—he/she isn’t Santa and, just because you haven’t gotten some of your statements, doesn’t mean you’ve landed on some financial naughty list (although I’m pretty sure mail carriers do appreciate milk and cookies).

Here’s a list of the documents that you may receive within the next month. Throughout January, I’ll talk about each type.  But for now here’s the list of the typical documents:

Keep an eye out for these documents.  My next blog will talk about W-2s and W-2Gs. Happy Tax Season to all of us.  May our tax preparation be easy and we all get a big refund (how we wish!).