Friday, March 7, 2014

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.
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.
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.

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?
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?
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.
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
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
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
File Form 4868
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

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.
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.
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.

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.
IRS Tax Extension Online