VOL. 130 | NO. 64 | Thursday, April 2, 2015
Rays of Wisdom
Dana and Ray Brandon
Making Sense Of the 1099 Alphabet
By Ray and Dana Brandon
Ray’s Take: As the April 15 deadline for filing taxes approaches, we are all looking at the various forms we’ve received related to tax filing.
Many people receive one or more 1099 forms with various letters following the number. These can be confusing if you don’t know what they mean, and not all dollars reported on 1099s should show up on your 1040 form as taxable income. Whatever you were paid last year, if it wasn’t wages on your W-2, it’s likely to be on a Form 1099.
So, how do you know?
Some of the most common 1099 forms are:
1099-INT reports taxable interest, 1099-DIV reports taxable dividends and 1099-R reports retirement income – usually from an IRA or pension. Those are pretty easy to figure out based on the letters following the number, and all are taxable. If retirement money was rolled over consistent with certain rules, that 1099-R must be reported but is not taxable.
For any freelance or consulting work, you will receive a 1099-MISC. These letters aren’t as closely related to the income as the ones previously listed, and the income is taxable.
There are two 1099s that are potentially not taxable. The 1099-G is a payout from a government entity, usually a state refund, and generally is not taxable. The 1099-Q is a distribution from a college plan and the funds were used for qualifying costs.
A 1099 form that could potentially save you on taxes is the 1099-B. This form comes from your securities custodian and shows proceeds from any sale of stocks, mutual fund shares or other assets. You get to subtract your basis -- that’s generally what you paid for the asset. If that’s more than the proceeds, you have a loss that will offset other taxable income and reduce your tax bill.
Consulting a tax specialist can help you wade through all the forms and determine what should be reported on your taxes.
Dana’s Take: This is a great time to educate your kids about income, taxes, FICA and all those other important issues they will deal with on their paychecks and W-2 forms. Also, include them in the visit to a tax preparer that goes along with all of it.
The most common form of income for teenagers, outside of working for a company, is babysitting. If more than $400 is earned, under IRS rules, this income must be reported. For those under 18, there is a special form to be completed so that self-employment taxes are not owed.
The reporting and taxes owed can be a little tricky for a teenager, and a tax specialist will be able to assist with the requirements.
Ray Brandon, CEO of Brandon Financial Planning, and his wife, Dana, a licensed clinical social worker, can be reached at brandonplanning.com.