How to File a 1099-A on Taxes

A lender is responsible for reporting on income received by a borrower when the loan is closed. A borrower benefits from the amount the business gains to settle the loan by acquiring property that secures a loan or taking responsibility for abandoned property. The borrower no longer has an obligation to pay the lender, but does have an obligation to report loan amounts that will not be repaid as income. Filing a 1099-A informs both the IRS and the borrower on the debt amount that is released.

Instructions

E File Tax Return

Collect information and documents on the closed debt and the property. You need all debt and closure information ready to complete the tax form. Dates for loans and property transactions are important.

Order Form 1099-A. Form 1099-A is the form you need for reporting amounts closed by property acquisitions or abandoned property. However, the general instructions for Form 1099 are used with the instructions for Form 1099-A. The forms and instructions can be ordered from the IRS by calling 1-800-TAX-FORMS. Electronic filing is available at the "Filing Information Returns Electronically" web page. If you are filing at least 250 forms 1042-S, 1098, 1099, 5498, 8027 or W-2G for any calendar year, you must use electronic filing.
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Report the amount of closed debt to the IRS on Form 1099-A. State the balance outstanding on the borrower's loan principal, and indicate whether the borrower was personally liable for the debt repayment. Fill in the description and fair market value of the property used to secure the debt to confirm the value gained in return for the debt closure. Specify acquired property or abandoned property. Include the date for the property acquisition or when the abandonment was known.

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File Form 1099-A Copy A with Form 1096 (Form 1096 is the transmittal document for filing the IRS copy). Mail the completed Form 1099-A to the IRS address stated in the general instructions for Form 1099, or submits via the Internet if filing electronically.

Send a statement on the closed debt amount to the borrower (Form 1099-A Copy B with information for the borrower can be the statement). Or, if you prefer, you can choose to write your own statement. An acceptable substitute statement includes the tax year, form number and form name.

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IRS 1099 Questions

Independent contractors work for various clients but are not employees of any one client. They must report their income to the Internal Revenue Service (IRS) as self-employment income if they make more than $400 per year. Each client is responsible for giving the independent contractor a form 1099 in January so that the contractor can accurately report income on his taxes

Who Gets a 1099?

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If you paid any independent contractor $600 or more over the past year for services, you must prepare a 1099 for that contractor. Send 1099 forms out by January 31 of each year. You should send 1099 forms to contractors even if they do business as a limited liability partnership or limited liability corporation. The IRS does not view these entities as separate from their owners, meaning the owner is personally liable for taxes due.

What are the Difference between 1099s and W-2s?

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1099 forms are sent to independent contractors, while W-2 forms are sent to employees. You are responsible for payroll taxes for your employees, including Social Security and Medicare taxes; independent contractors must pay these taxes themselves. If you are not sure whether a worker qualifies as an independent contractor, consult an attorney before sending him a tax form. If you send a W-2 form, you are declaring that the person is your employee and must pay payroll taxes even if she qualifies as an independent contractor under tax laws.

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If A Contractor Only Works for Me, Does That Make Him an Employee?

As of 2012, U.S. tax law states that an independent contractor who works for only one client is an employee under certain circumstances. However, if the contractor works from home, works less than 1,000 hours annually and bills you for her hours, she may still be considered a contractor, requiring you to send her a 1099.
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Where to Record a 1099-S on Taxes

Internal Revenue Service Form 1099-S is used to report real estate transactions. The form is provided to the seller of the home at closing and includes transaction details that will assist in preparing the person’s individual income tax return. Individuals who have received a Form 1099-S report their personal income taxes annually on Form 1040 or Form 1040A. Form 1040-EZ is not available for use when real estate transactions need to be reported.

Review Form 1099-S

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Review Form 1099-S received for accuracy. Verify the date of sale, the gross proceeds, the address of the real estate sold and the filer’s identification information. The filer is the individual that sold the real estate. The filer’s federal tax identification number is the individual’s social security number. The transferor information applies to the buyer of the real estate. If there are any errors on the form, contact the issuer immediately. This information is reported to the IRS.

Calculate the Gain on Sale

Use Form 1099-S to determine the gain on the sale of the real estate that will be reported on the tax return. The gain is calculated by subtracting the sale proceeds from the purchase price. The cost of improvements on the property may also be subtracted from the sale proceeds. This reduces your reportable gain. Improvements must have a useful life of one year or more, such as roofing, windows or additions. Improvements that are not deducted from the sale price are regular maintenance items such as painting, lawn service or new doorknobs. Selling expenses, including commissions, advertising fees, legal fees and loan charges paid by the seller, are also subtracted from the sale to reduce the reportable gain.

Record the Gain on Schedule D and Form 8949

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Record the gain on the sale of real estate on Form 8949, Sales and Other Dispositions of Capital Assets which will then carry over to Schedule D, Capital Gains and Losses. Both Form 8949 and Schedule D are attached to Form 1040 or 1040A. The gain is reported on either line 1, short-term capital gain, or line 3, long-term capital gain on Form 8949. If the real estate was held for less than one year, it is a short-term gain; if held for more than one year, it is a long-term gain. In the event there was a loss realized on the sale of the real estate, the loss must be reported on Form 8949 and Schedule D. However, the loss is not deductible and will not lower your income taxes. Record the loss on he appropriate line of Schedule D but do not include in the total reported in Column F.

Record Real Estate Taxes on Schedule A
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Form 1099-S reports the amount of real estate taxes paid by or charged to the buyer at the time of the real estate transaction in Box 5. The correct amount of real estate taxes to deduct on Schedule A, Itemized Deductions, should not include any real estate taxes reported in Box 5. Report real estate taxes paid during the year on line 6 of Schedule A. Schedule A will be attached to Form 1040 or Form 1040A.

Tax Filing Exception

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Form 1099-S is not required to be provided in the event an individual sold his main residence and has a gain on the sale of $250,000 or less; $500,000 or less in the case of married individuals filing a joint tax return. This exclusion of the gain is permitted under IRS Code Section 121. Additionally, the gain on the sale is not required to be reported on the individual’s tax return. However, it is advisable that the sale be reported on Schedule D with a note on the following line that the gain on the sale is excludable under IRS Section 121. Record “Section 121 Exclusion” in Column A of Schedule D and the gain being excluded in Column F.

How to Dispute an Erroneous IRS 1099 Form

There are 32 different version of Form 1099. Each version covers a different type of payment, from the 1099-MISC, which covers payments to independent contractors, to the 1099-INT, which covers interest income. However, the most common version is the 1099-B, which details earnings from stocks and bonds. Regardless of which version of Form 1099 you are expecting, it is important to know that a copy is automatically sent to the IRS. Therefore, any inaccuracies need to be disputed before you file your tax return. This is a common enough situation that the IRS has established a simple procedure to follow to make corrections.

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Instructions

Keep careful records of your income, regardless of whether you expect to receive a 1099.

Compare the amount on the 1099 that you receive to your records.

Contact the company or individual who sent the 1099 to request an amended 1099 in the case of any discrepancies. Send a second request via certified mail if you receive no response. This step is essential, as the IRS will not assist you if you have not made an attempt to contact the company to request an amended 1099.

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After Feb. 14, you can contact the IRS directly at 1-800-829-1040 to request assistance. The IRS will ask for your personal information, your estimate as to the correct amount, evidence to support this and which steps you have taken to address the issue on your own.

File your taxes on April 15 (or the applicable tax deadline for that year) using Form 4852 if you have not received a 1099-R (corrected 1099) by that date. Form 4852 will require much of the same information as your original 1099, but it will allow you to file with the corrected information.

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Check your Social Security statement the following year to make sure that the amount of earnings shown reflects the amount of Form 4852 or the amended 1099.
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How Tax Forms Mirror Social Policy

Some would say that 13 is an unlucky number.  The year 1913 brought us the beginning of the US income tax system, which many of us think of as an unfortunate fact of life.  But what many of us don’t know is that we fill out tax forms not just to fund our government, but also to contribute to society.

Filling Out Tax Forms Does More Than Fund The Government

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It all started with the 16th Amendment, which authorized the income tax in the United States.  It was created not only to financially support the government but also to promote social and economic policies.  The IRS uses tax incentives to promote governmental preferences regarding how we live.

How Tax Credits Help Society

Earned Income Credit is an example of a social policy that’s nudged along by the filling out of tax forms.  People in certain lower ranges of income can get an additional credit and it helps increase the refund they get.

You can also get a credit for paying for child care…that’s how the government encourages people to spend on day care.

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The federal government also encourages you to contribute to charity.  Yes, there’s a tax form for that too.  Fill it out and you can see more deductions from your taxable income.

Then there’s also the workforce development credit…hire certain parts of the population, get tax credits.  The idea is to help the economy by helping disadvantaged populations.

Hurricane Katrina deductions and credits are examples of how the tax system helps further economic policies.  There are deductions and credits for starting a  new business in the New Orleans area, for developing the workforce there.  This is designed to spur on the economy in areas hit by Hurricane Katrina.
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Schedule C on Form 1040

Owning Your Own Business: Schedule C on Form 1040

So you started an online business and make a few bucks a week selling exotic teas from around the world.  Who’s to know you’ve got some extra income?  You haven’t quit your day job and it’s just a few hundred dollars anyway. Will this change anything come tax season?  You betcha!  It’s business income, baby, and congratulations, now you must use the slightly longer 1040 form, rather than the IRS 1040 EZ.  Here’s how it works.

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Where is my tax refund

We’ve already mentioned capital gains as a form of income that will necessitate the use of the 1040 over the EZ form.  There’s also Business Income.  That’s a Sole Proprietorship, owned by you, that makes money.  Don’t worry: if it loses money the IRS still wants to know about it and they will adjust your income tax accordingly.

This is a one-page form that’s part of the 1040 package.  It’s called Schedule C, Profit or Loss From Business.  It works pretty much like pages one and two of form 1040.  First you write in the basic info about your business: address, what type of business it is, how you do your accounting, and what your role is.
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Then it’s list the income, expenses, and the difference between the two.  You wind up with a dollar amount: the net profit or loss of your business.  That gets entered on line 12 of the first page of IRS Form 1040, and gets included in your total income, along wages or any other income you had that year.

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IRS Schedule C

What Tax Forms to Use When You Have Your Own Business: IRS Schedule C

Did you make money on the side this year?  Or did you quit your wage job and start your own business?  How about weekend odd jobs for neighbors where cash was accepted?  If you said yes to any of these questions, it means you are self employed and you’ll have to fill out Schedule C when you do your taxes.

Schedule C is called Profit or Loss from a Business.  If you are self-employed, you will need to fill out this tax form and attach it to your IRS 1040 when filing your federal taxes.  You can list expenses and you may come up with a net loss, but the form still has to be submitted with your Federal Income Tax form.

The Schedule C-EZ

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Great news, there’s an easy (EZ) form of the Schedule C.  Here’s how to qualify for using the simpler form:

you are a sole proprietor

you had less than $5000 in business expenses

had a net profit

no business inventory

no employees

no home-office deduction

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IRS Form 4868

IRS Form 4868 – Application for Automatic Extension of Time to File U.S. Individual Income Tax Return

Taxpayers who are unable to file their federal income tax return by due dates may be entitled to a 6-month extension of time to file returns. IRS Tax Form 4868 – also referred to as Application of Automatic Extension of Time to file U.S. Income Tax Return – is an application for tax extension for individuals who wish to buy more time to report the details of their income to the IRS.

It is interesting to note that that IRS Form 4868 does not extend the amount of time for the payment of tax liability, rather merely extends the amount of time allowed to file the tax return paperwork. Individuals can thus prevent late penalties from accruing but not the interest.

Who is it for?

As a general rule, any taxpayer can file Form 4868 to request an extension up to six months by the due date of his or her regular tax return. The request should be timely and present an estimate of the applicant’s tax liability for the tax period.

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Taxpayers who are overseas on the expiry day of the six-month extension can request an additional two months by mailing a letter to the IRS elucidating reasons for extension.

Other than individuals, 1099 contractors, single member Limited Liability Companies and Schedule C Sole Proprietors can also use Form 4868 for tax extension.

Who is not required to file?

U.S. citizens living overseas or those individuals who are serving in a combat zone (deployed outside the U.S.) are not required to fill in Form 4868. They shall automatically receive a two-month extension.

Moreover, individuals will not file Form 4868 if they want IRS to figure their tax or alternatively are under court orders to file their return by the regular due date.
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How to apply?

In order to gain that extra 6-month extension, individuals must estimate their tax liability for the year correctly, enter the total tax liability in the Form 4868 and file (through postal mail or electronically) by the regular due date of return.

An individual is not required to make a payment of the tax they estimate as due, Form 4868 does not extend the time to pay taxes. Remittances that individual applicants make with their application for extension will be considered as a tax payment.

Reasons for extension

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The IRS does not demand any reasons for extension. Most applications are approved. In case of the request being turned down, the IRS will contact the individual itself. However owing back taxes and failure to pay according to a payment plan are some of the possible reasons of application rejection.

Penalties & interest

Individuals will owe interest on any unpaid tax pending by the regular due date of filing returns despite having qualified for the 2-month extension and/or having a good reason for not paying on time. The interest persists till the tax has been paid. Likewise, a late ‘payment’ penalty is charged for each month or part of a month the tax is unpaid. It can be avoided if the individual can present a sound reason for not having paid on time. On the contrary, a late ‘filing’ penalty is usually charged if the return is filed after the due date (including extensions). A penalty can be avoided if supported by a reasonable explanation for filing late.

Reasons for rejection

An extension request made to the IRS will normally take up to 48 hours to be validated and termed as accepted or rejected. IRS turns down certain tax extension applications if:

The name and social security number (SSN) are incorrect and do not match the recently filed name and SSN.

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Failure to inform IRS about an adjustment such as change in name etc. IRS will hence be unable to map the tax information with the extension request.

The Adjusted Gross Income (AGI) entered does not match the IRS records.

Individuals can reapply for extension; however they’ll be liable to pay fines and dues that may have been accrued if prescribed deadlines are not honored.

When & how should it be filed?

Businesses can request the form from the IRS and fill it out appropriately. It is important to sign and date the form before dispatching the forms to the intended address. The address varies by the state depending where the business is located. Before filing however, it is advisable for businesses to request from their vendors and contractors submission of a Form W-9. The W-9 aids businesses in filling the 1099 Misc by providing them with legal names, addresses and taxpayer identification number for the contractors.

Penalties & interest

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If business entities making payments exceeding $600 to independent contractors fail to file Form 1099, there is a $100 overall penalty on each form not filed or furnished to the contractor. Moreover a 1099-Misc not provided to the independent contractor (who is not a corporation or partnership) by the due date, will subject the business to a fixed penalty per return. Penalties are also incurred on returns filed either incorrectly or bearing incorrect taxpayer identification.
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IRS Form 1099 – Miscellaneous Income

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 detail diverse types of income an individual may accept other than the salary received from his or her employer.

The paying entity (or say, an employer) is responsible for filling out the appropriate variant of 1099 form and sending it back to the individual. The many types of income may include interest, dividends or cancellation of debt all characterized under taxable income. There are 13 different types of 1099 forms used for various information reporting requirements which both the employers and employees must furnish to the IRS. Businesses make use of Form 1099s to account for payments made for rents, awards and services and payments made to subcontractors also called non-employee compensation.

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Who is it for?

The IRS Form 1099 Misc  is issued to individuals and partnership concerns that have paid $600 or more as rents, awards, royalties, annuities, services and other such payments in the course of business. Persons receiving a Form 1099 Misc form consist of human subjects including individuals, partnerships and limited liability companies (treated as partnership or sole-proprietorship) as well as independent service providing contractors.

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Who is not required to file?

Businesses will not require a 1099 Misc if payments are made to a corporation. Similarly, individuals who make personal payments to an independent contractor, entirely unrelated to their business, need not send a 1099 Misc either. In short, 1099 Misc for payments made to cater to personal needs should not be issued.
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Who is not required to file

An employer that does not hire and maintain a regular staff and has a trivial or irregular sum-total payroll is absolved from the liability to file Form 940 and pay taxes therein. Likewise, organizations referenced in section 501 (c)(3) as tax-exempt and employees of a state of a political subdivision offering services are not liable to pay FUTA tax either. Moreover, IRS also spares FUTA tax to services rendered by employees of a federally recognized Indian tribal government employer on the condition that the tribe conforms to the applicable state unemployment law.

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When & how should it be filed?

Form 940 (FUTA) is filed annually, normally due by January 31st. A payment of full deposit of all FUTA withholdings due can be made earlier though. Business owners can file Form 940 either on paper or electronically.

Penalties & interest
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In order to steer clear of unnecessary penalties and interests, businesses must make tax deposits within due dates, file correct returns and disburse the accurately calculated amount of tax to the IRS. The law imposes penalties for delayed deposits and filing unless businesses disclose realistic reasons that caused the delay. Additional penalties are charged for the following offenses:

i. failure to pay tax deliberately or on purpose

ii. failure to keep records and/or make returns

iii. filing fraudulent returns

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IRS Form 940 – Employer’s Annual Federal Unemployment

IRS form 940 is a document that is required to be filed annually by businesses that hire and retain employees. Through this form, businesses report their annual federal unemployment taxes. These taxes do not get deducted from employee salaries. There are many state unemployment programs in the U.S. that together with the federal unemployment taxes, recompense workers who are no longer employed or have lost their jobs. Form 940 is furnished by employers to the Federal Reserve, reporting the amount of Federal Unemployment Tax (FUTA) that will be paid by them for their employees.

Who is it for?

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Generally all business employers will pay FUTA taxes if they have at least one employee on at least one day in 20 different weeks in a year, or if they remunerate a sum exceeding $1,500 in salaries in any “calendar quarter” (or the 4 three-month periods) of the year. Household and agricultural employers will be governed by separate  rules. Household employers will be liable to pay FUTA taxes if they pay more than $1,000 in total wages in any quarter. Whereas the latter will pay FUTA taxes on hired help only if they pay over $20,000 in wages in any quarter or if they have more than 10 farm workers on at least one day in 20 different weeks.

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Who is not required to file

All business partnerships that do not earn revenues or are sustaining expenses that will step up to appear as deductions or credits on a federal income tax return, will be absolved from filing Form 1065. Also, IRS does not recognize corporations, trusts, estates and sole proprietorships as ‘business partnerships’ for federal income tax purposes either.

When & how should it be filed?

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As with the general norm, IRS requires a domestic partnership to file Form 1065 by the fifteenth day of the fourth month following the current tax-year end-date.

For filing, partnerships can request Form 1096 from the IRS office or through webmail. The Form 1065 is user-friendly and self-explanatory. Businesses will need to fill in mandatory information which includes name of the business, postal address, telephone number, the payee along with his or her Social Security Number and the amount paid herewith. Form 1096 must be completed with signatures and dates due. The completed documents can then be mailed to the IRS at the address that’s relevant to the state in which the business is located.
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IRS Form 1065 – U.S. Return of Partnership Income

Form 1065 is an information return document issued by the IRS for specific tax purposes pertaining to business partnerships. The form, also known as the U.S. Return of Partnership Income is used to report the business’s earnings, profits, losses, deductions, credits and so forth accrued during the partnership’s operations for a particular tax year. Partners must mention business partnership items on their information returns.

What is a business partnership? The IRS recognizes a relatio­­nship between two or more people who come together to conduct a trade or business as a business partnership. The partnership may or may not be bound by a formal partnership agreement; however each partner contributes to capital, assets, labor or expertise relevant to the operations of the business.

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Partners must also agree to share in the profits and losses of the business. On the contrary, if an enterprise collaborates mainly to share in operating expenses or on the other hand, co-owns property with the intention of maintaining the facility without specializing in the provision of services to the tenants, it will not be characterized as a business partnership.
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Who is it for?

Schedule D (Form 1065) is for all domestic taxpaying partnerships who must report their partnership income to IRS. It is obligatory on Limited Liability Companies (LLCs) that are classified as partnerships under the Internal Revenue Code to file Form 1065 too. Religious and other consecrated establishments that qualify as tax-exempt must also file Form 1065 to report any taxable income. Moreover, spouses jointly owning and operating unincorporated businesses, thereby sharing in the profits and losses, are duty-bound to file Form 1065. A foreign partnership however, will only be liable to file Form 1065 if it satisfies the following two conditions.

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i. Reaps an aggregate income that is connected with the management of a trade or business within the United States or

ii. Acquires gross income from sources within the United States even if the business is placed outside of the United States or its members are foreign nationals.

IRS Publication 15 – A Tax Guide For the Employers – Pub 15

IRS publication 15 is a document detailing the responsibilities of an employer for filing and reporting tax related information to the Internal Revenue Service. The document covers a number of different tax related aspects on behalf of the employees like reporting, withholding and depositing along with correction and payment of taxes. In IRS publication 15 you can always expect the most up to date tax information and withholding tables of the year.

This particular publication is actually used for determining the federal income tax and not the state and local taxes and employers are required to refer to the tax rules of their respective states for ensuring proper amounts for state income tax that are withheld from the paychecks of the employees.

A supplemental tax guide for employers:

Publication 15 A, that supplements the IRS publication 15 under Circular E, actually serves as a tax guide for the employers. The publication contains detailed and specialized information about employment tax. On the other hand Publication 15B is a guide for the employers for fringe benefits and carries information on non-cash compensation types of employment tax. As an employer’s tax guide Publication 15 explains the tax responsibilities of an employer and also has tables that are required to figure out the amount of tax that is to withhold from the employees.

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As per IRS publication 15, you need to verify that your employees are legally eligible to work in the country. Thus,you must fill out Form I-9 of U.S. Citizenship and Immigration Services for verification of employment eligibility. You are also required to report every new appointment and a new appointment means appointing someone who was never before appointed by you including those who were previously appointed but were separated for more than sixty consecutive working days.

New in 2013:

Employers are required to implement the withholding tables for 2013 before February 15 and use the tables for 2012 until then. According to IRS publication 15, the social security tax rate for employees is going to be 6.2% instead of its previous rate of 4.2%. But the employer’s tax rate for the same remains unchanged at 6.2% and the wage base limit for social security is also set to $113,700 for the year 2013. Following the latest additions in Publication 15 as an employer you are also required to withhold 0.9% as Additional Medicare Tax along with 1.45% of Medicare Tax. This Additional Medicare Tax is withheld from the employees only and there is no share of the employer in it.

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As per IRS publication 15, starting from January 1, 2013, withholding limit on payment of wages to any particular employee above 1 million dollars is set at 39.6% in place of its previous rate of 35%. Now you can also avail tax credit on the appointment of unemployed but eligible veterans who must start working by the end of the year 2013. You can also use Form 5884-C to claim work opportunity tax credit against their payroll liability.
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