2012 tax statements are on their way from employers, banks, brokerage companies and other financial agencies. Documents will be arriving in the mail and electronically as payers have a little over a week remaining – the 31 of January – to get their tax statements out to you.
There are a handful of familiar statements that most of us annually get, and then there are the less-common documents we may receive and wonder what they are.
Here is a rundown of what you will find in your mailbox this year, and what to do with them.
W2 – The W2 of course is the king of all tax documents. Wage earning individuals report to the IRS the amount reflected on their W2 for income and federal tax withholding. A hard copy W2 or an electronic version must be sent to the IRS with your tax return.
Hint: Watch carefully for amounts reported in Box 8 – Allocated Tips, and box 10 – Dependent Care benefits. If you receive tip income, your employer may add an amount to Box 8 to represent additional tips that you received but did not properly claim. Add this amount to Box 1 and report as taxable.
Box 10 will show reimbursed or dollar value estimated amounts from your employer for dependent care expenses, such as an on-site daycare center. Amounts under $5,000 are non-taxable benefits. Any amount over $5,000 should already be included as taxable wages in Box 1.
Related: I didn’t get my W2, now what?
1099-MISC – The 1099 Miscellaneous form is used to report over $600 in rents, prizes or awards and self-employment earnings. It is also used to report at least $10 in royalties or broker payments. 1099-MISC income should not be reported on Line 7 as wages. If you had self-employment income (and business deductions to offset), file a Schedule C and report the net amount on your 1040 Line 12. If you are reporting the straight amount, use Line 21.
Hint: The IRS frequently sees 1099-MISC income go unreported. 1099 income is reported directly to the IRS, not to Social Security like your W2 income. Additional tax assessments may be made, along with penalty and interest charges, if you fail to report the income.
1099-INT – If you earned more than $10 in interest on funds in a bank account, you will get a 1099-INT statement for each account. The 1099-INT does not need to be sent in to the IRS, but be sure to include the income on Line 8.
Hint: Interest earned does not function like an IRA withdrawal. Even if you reinvested the interest, or simply allowed it to accrue untouched in the account, it still is taxable.
1099-B – A big change this year makes Form 1099-B a whole lot easier to figure out. The 1099-B reports income from brokered or bartered transactions, such as the sale of stocks or bonds. On previous 1099-Bs, there was no requirement to record the purchase price of the stock that was sold. Now, brokers must report the adjusted basis, which includes commissions and taxes taken out as well as the cost of the underlying security itself when the trade was executed.
Use Schedule D to report any capital gains (or losses) on your stock trades.
Hint: When reporting securities and asked to describe the property on your Schedule-D, list the stock ticker symbol or abbreviation, not the name of the company you invested in or the name of the brokerage handling the trade.
1099-G – State tax information is often reported on Form 1099-G, such as the amount of refunds, credits, and offsets of state income tax during the previous year. Some states will use this form to report taxable state unemployment benefits as well.
Hint: If you itemized your deductions on Schedule-A last year and took a deduction for state taxes paid or withheld from your paycheck, then your state refund, as reported on 1099-G, must be included on your tax return as income this year.
1099-K – This is a new one. Beginning in January 2012, payment settlement entities are required to report on Form 1099-K all payments made in settlement of payment card transactions in excess of $20,000 gross, and if there are more than 200 such transactions with the participating payee.
In other words, if you have a business and use an online merchant like PayPal to receive funds, those payments are now being tracked by the IRS in an attempt to close the gap in income that goes unreported in the online selling community.
Hint: Remember, the 1099-K is only capturing exchanges of funds. In this way, it actually helps individuals to track their gross sales. Business expenses still should be deducted from this figure and you are only responsible pay taxes on the net earnings.
1099-C – This document is used to report the cancellation of debt. If you settle a debt with a creditor for less than the full amount owed, or if a creditor forgives a debt by canceling it outright, a 1099-C document is reported to the IRS with a copy sent to you.
Hint: The IRS treats forgiven debt as income, and taxes may be owed. Frequently, as in the case of bankruptcies, unsecured creditors like credit card companies receive no payment. Those debts are absolved, but the tax still must be accounted for. The same may hold true for property that is reacquired by a bank and sold at a loss.
Jay is a 15-year IRS employee who writes on all things tax related. Hit the 'Subscribe' button above to automatically receive Jay's new articles.