Another tax season has snuck up on us already. Tax organizers have already been sent to clients to prepare them for the challenging tax season ahead. Once they receive this subtle reminder that tax season is looming, clients who are trying to stay ahead will email or call me and ask what they can be doing now to prepare for the coming months. The tax organizer covers every possible tax preparation angle, but I highlighted some best practices, as well as some new practices, for 2014. I will cover these practices in numerous posts throughout the next few weeks. Today, I will touch upon the forms that will document your income throughout the year:
This is one of the most common income forms and is received each year by anyone who is an employee of a company. This form, which should be arriving from your employer before January 31, lists your gross income, federal and state tax withholding and other ancillary information relating to benefits.
Along with the standard Form W-2, you may be issued Form W-2G if you won big at a casino. Remember, the IRS will be informed of your gross win because of this form, but it is your job to track your losses (and expenses if you are a professional gambler) in order offset any gain you may have at the end of the year. You should also be prepared to pay state taxes, in case you live in one of the states that does not allow wins to be offset by losses throughout the year.
If you worked as an independent contractor throughout 2014 and were paid $600 or more from one individual or company, you will be receiving one or more Form 1099-MISC. This form, similar to a W-2, will show gross payments received and if any tax was withheld on your behalf. It is important to note which box contains your income figure, since there can be different tax treatment for each (Box 3 vs. Box 7). Also, many people who dove into “daily fantasy sports” with DraftKings, FanDuel, or one of their competitors, could be receiving Form 1099-MISC if their winnings exceeded $600.
Although Form 1099-MISC is the most common version of the form, other popular 1099s you may receive include: interest earned (1099-INT), dividends and distributions (1099-DIV), proceeds from a stock sale (1099-B), distributions from a pension (1099-R), government payments (1099-G) and cancellation of debt (1099-C).
If you have an interest in a Partnership or S-Corporation, or if you are a beneficiary to a trust or estate, you will receive this form at the end of the year. Schedule K-1 shows the flow-through of income, expenses and deductions from your business to your personal return.
I often hear people say: “I only received a 1099 for $700, the IRS will not bother me if I do not claim the income.” I still cringe every time I hear someone say that. You need to report all of your income, regardless of it being documented on one of these forms, or not. Always, always, always report all of your income! All of these forms should be kept for your record and given to your tax preparer (if you use one) when you file your return.
Be on the lookout for Part II, which will discuss the other important forms you may receive regarding expenses and deductions.