In ancient Greece, a community of people called Pythagoreans attributed mystical and even sacred qualities to certain numbers and geometric forms.
U.S tax law of today is decidedly secular, not sacred. But Pythagoreans would perhaps be pleased at the importance that various numbers and associated forms have taken on.
In that spirit, we offer three frequently asked questions about 1099 forms. This form – or set of forms – is one of the most important among all of the seemingly innumerable forms involved in tax compliance.
Question 1: What are 1099s used for?
The 1099 is an informational return filed with the IRS and sent to taxpayers to report income from various sources. The sender could be your employer, a financial institution or some other entity that paid out income to you over the course of the year.
The IRS uses the 1099s it receives from these payers to match up or cross-check the income you report on your taxes. If you don’t include income on your return that is reflected in a 1099 received by the IRS, you could be setting yourself for a tax audit.
For many taxpayers, then, keeping track of 1099s is important for an accurate tax filing. This is especially true if you are an independent contractor who receives a 1099 (or multiple 1099s) rather than a W-2.
Question 2: How many different types of 1099s are there?
With all due apologies to Pythagoras, the following answer will not be precisely numerical. The most common is 1099-MISC, for miscellaneous income.
Other common forms include 1099-INT, for interest income and 1099-DIV, for dividends. There are also 1099s for pensions (1099-R) and real estate transactions (1099-S).
Question 3: What about Form 1099-K?
Form 1099-K, regarding third party payment networks, is a relatively new addition to the 1099 fold. It is the subject of considerable attention right now due to uncertainty of its application to the sharing economy. We discussed that issue at some length in our December 22 post.