Trailblazer News

Guide to 1098 and 1099 Tax Forms

Posted on February 12, 2014

1098 Tax Forms

The Internal Revenue Service's 1098 tax forms report payments or other contributions you have made that may be deductible from your taxable income. These are forms you’ll receive in the mail around tax time – you’ll use the numbers reported on them when preparing your taxes.

Of the four forms with the 1098 number, the one that's probably most familiar to taxpayers tells you how much you paid in mortgage interest. Others report certain charitable donations, tuition expenses and student loan interest.

Form 1098
The standard Form 1098 is the "Mortgage Interest Statement," which comes from the company that services your mortgage loan. Mortgage interest on first and second homes is generally deductible for taxpayers who itemize their deductions.

This form tells you how much you paid in interest the previous year, including prepaid "points" of interest, and may include other useful information, such as how much you paid for mortgage insurance and any property taxes paid by the mortgage company -- both of which may also be deductible.

If you paid at least $600 in interest in a year, your mortgage company is required to send you a copy of Form 1098 by January 31 of the following year. If you paid less than that, Pioneer will not send you a 1098.

Form 1098-C
You will receive a copy of Form 1098-C if you donate an automobile, boat or aircraft worth more than $500 to a tax-exempt organization. The recipient of the donation generally has 30 days to provide you a copy.

The form provides information about the donation, including the type of vehicle, the vehicle's identification number, the date of the donation and the value of the vehicle. Charitable donations are deductible if you itemize, but if you claim a deduction for a vehicle worth more than $500, you must attach Copy B of Form 1098-C to your return.

Form 1098-E
Form 1098-E reports interest you paid on a student loan during the preceding year. Most taxpayers are allowed to take a deduction for student loan interest, regardless of whether they itemize, although eligibility for the deduction phases out at higher incomes. The organization that carries your student loan must send you a copy of Form 1098-E by January 31 if you paid at least $600 in interest. Even if you paid less than that, you may still get a form.

Form 1098-T
Form 1098-T is the "Tuition Statement." This form tells you how much you paid in tuition for post-secondary education. Most taxpayers can take a deduction for tuition and related expenses reported on the 1098-T, regardless of whether they itemize, although this deduction also phases out for higher-income taxpayers.

Alternatively, tuition expenses can be used to qualify for certain tax credits. Form 1098-T also reports any scholarships or grants you received through the school that may reduce your allowable deduction or credit. Schools must provide a 1098-T to any student who has paid tuition or related reportable expenses by January 31 following the year in which the payments were made.

1099 Forms

The 1099 form is a series of documents the Internal Revenue Service (IRS) refers to as "information returns." There are a number of different 1099 forms that report the various types of income you may receive throughout the year other than the salary your employer pays you. The person or entity that pays you is responsible for filling out the appropriate 1099 form and sending it to you by Jan. 31.

Independent contractor income
If you are a worker earning a salary or wage, your employer reports your annual earnings at year-end on Form W-2. However, if you are an independent contractor or self-employed you will receive a Form 1099-MISC from each client that pays you at least $600 during the tax year.

For example, if you are a freelance writer, consultant or artist, you hire yourself out to individuals or companies on a contract basis. The income you receive from each job you take should be reported to you on Form 1099-MISC. When you prepare your tax return, the IRS requires you to report all of this income and pay income tax on it.

1099s for interest and dividends
When you own a portfolio of stock investments or mutual funds, you may receive a Form 1099-DIV to report the dividends and other distributions you receive during the year. These payments are different than the income you earn from selling stocks. Rather, it is a payment of the corporation’s earnings directly to shareholders.

Other types of investments you have may pay periodic interest payments rather than dividends. These interest payments are also taxable and are reported to you on Form 1099-INT. Commonly, taxpayers receive this form from banks where they have savings accounts.

Government payments
The federal and state governments are equally responsible for reporting income that it pays to taxpayers. Government agencies commonly use Form 1099-G to report the state income tax refunds and unemployment compensation you receive during the year. If you receive unemployment income, you must include the entire amount your state reports on the 1099-G form in your taxable income. However, you only include your state refund in income if you claimed a deduction for it in a prior tax year.

Withdrawals from a retirement account
When you withdraw money from your traditional IRA, in most cases it is taxable. You will receive a Form 1099-R that reports your total withdrawals for the year before you prepare your tax return. The form also covers other types of distributions you receive from pension plans, annuities and profit-sharing plans. Sometimes the 1099-R will show the taxable amount of the distribution on the form itself and will report the amount of federal tax that was withheld.

The 1099-C for debt cancellations
Sometimes, transactions can increase your taxable income even when you don’t receive a payment. This commonly occurs when a creditor cancels a portion of your outstanding debt. When this happens, the IRS treats the debt cancellation as income which may be taxable to you. For example, if your credit card company no longer requires you to pay your outstanding balance, it may send you Form 1099-C to report the amount of debt it cancels and you may need to report this amount on your tax return.

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