Understanding Your Tax Documents, Step by Step

Understanding your tax documents -- do you have all you need to file correctly?It's that time of year, when your mailbox is overflowing with all kinds of tax documents and forms. But what the heck do they all mean? Here's a brief rundown:

Form W-2

Your form W-2, Wage and Tax Statement, is an information return used by your employer to report wages or compensation paid to you during the year. The form reports your employer's basic information (name, address and tax identification number) as well as your own information (similarly, name, address and tax identification number).Beginning at box 1, you'll see the amount of wages paid to you. This amount will include any taxable fringe benefits you received during the year and amounts distributed from a deferred compensation plan, such as a 401k plan (those amounts may appear in box 11). The amount of federal income taxes withheld from your wages follows at box 2.

In boxes 3 and 5, your employer reports the amount of wages subject to Social Security and Medicare, respectively; those withholding amounts are reported in boxes 4 and 6, respectively. Depending on the amount of your wages and your benefits plan, the amounts reported at boxes 1, 3 and 5 may vary. Wages subject to Social Security are capped at $106,800 for 2010, but there is no such cap for Medicare wages.

The amount of tip income that you reported to your employer will be included at box 7; the amount of tip income that your employer believes you failed to include at box 7 is reported at box 8.

If you requested to have your Earned Income Tax Credit (EITC) paid to you by your employer, instead of claiming it all on your tax return, those amounts advanced to you will be reported in box 9.

The value of dependent care services provided to you by your employer or reimbursed under a benefits plan is reported at box 10. Generally, those amounts less than $5,000 are non-taxable benefits. Any amount more than $5,000 is taxable and will be included in the amounts reported at boxes 1, 3 and 5.

Amounts distributed to you from your employer's non-qualified deferred compensation plan are reported at box 11, while deferred compensation plans and other benefits are reported at box 12.

One of the three boxes at box 13 will be checked off if you are a statutory employee, participated in your employer's retirement plan during the year, or if you are the recipient of third-party sick pay under your employer's third-party insurance policy.

Box 14 is a "catch all" box. Anything that can't be reported elsewhere on the form gets reported here. This might include, for example, health insurance or tuition assistance. In many states, it also includes mandatory state disability insurance (SDI) premiums.

Your state and local tax information is printed at the bottom of the form in the remaining boxes.

You'll receive more than one copy of your form W-2. You'll file Copy B with your federal income tax returns and file Copy 2 with your state or local tax returns. Keep Copy C for your own records.

Form W-2G

You'll only receive a form W-2G if you're lucky -- the form is used to report income and withholding related to gambling if you've won $600 or more in gambling winnings (the amounts are higher for bingo, slots and keno). Any amounts of your winnings withheld for taxes would also be reported on your form W-2G. The form W-2G may also come in handy for determining your net for the year -- if you lost money gambling, you'll only be able to claim a loss up to your winnings.

Form 1099 Series

Most taxpayers think of the form 1099 as one form, but it's actually a series of forms. Here's a quick look at some of the most popular:
  • 1099-B: Proceeds from Broker and Barter Exchange Transactions. This form is generally issued by a brokerage house or other financial institution to report sales of stock, mutual funds, etc., and reports the nature and date of the sale and the amount realized from the sale. It will not report your cost basis, which you'll need to figure out your capital gain.
  • 1099-C: Cancellation of Debt. If a lender or financial institution (such as a bank or credit card) writes off all or part of a debt you owe, it will issue a form 1099-C for the debt that's forgiven. Generally, you have to report that amount as income to you on your tax return; however, some exceptions apply, including bankruptcy and insolvency.
  • 1099-DIV: Dividends and Distributions. A bank or brokerage company will issue a form 1099-DIV for dividends paid out to you during the year. Expect to receive a form 1099-DIV if the total of your dividends was $600 or more, though some banks and brokerage companies send them as a matter of course.
  • 1099-G: Government Payments. If you receive money from the government during the year that is not related to wages or salary, it will be reported on a form 1099-G. Examples include state and local tax refunds or credits and unemployment benefits.
  • 1099-INT: Interest Income. A bank or brokerage company will issue a form 1099-INT for interest you earned during the year. Expect to receive a form 1099-INT if the total of that interest was $600 or more, though as with forms 1099-DIV, some banks and brokerage companies send them as a matter of course.
  • 1099-MISC: Miscellaneous Income. This is the form most taxpayers think about when they think of a form 1099. The form 1099-MISC is the "catch all" form when the other forms 1099 don't quite fit. A form 1099-MISC includes amounts paid out as non-employee compensation (what you and I think of as freelance work), as well as commissions, prize winnings, rents, royalties and fees paid to attorneys.
  • 1099-Q: Payment from Qualified Education Programs. If you participate in a Coverdell education savings account (ESA) or a qualified tuition program (QTP), and received benefits from the plan during the year, you'll receive a form 1099-Q. Usually, these distributions are not taxable if you use them to pay for your education.
  • 1099-R: Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. If you are retired or have made a withdrawal from an IRA or 401k, you're probably familiar with the form 1099-R. The form 1099-R is used to report distributions from pensions, profit-sharing plans, IRAs, insurance contracts that have value (generally not term policies) and annuities. Forms 1099-R are coded depending on the type of distribution; those codes affect whether the distribution is considered taxable. You can find a handy list of codes here.
  • 1099-SA: Distributions From an HSA, Archer MSA, or Medicare Advantage MSA. If you received distributions from your Health Savings Account (HSA) or Medicare Advantage Medical Savings Account (MSA), you'll receive a form 1099-SA. In many cases, these distributions are not taxable.
  • SSA-1099: Social Security Benefit Statement. Social Security benefits paid to you during the year are reported on a form SSA-1099. If you elected to have taxes withheld from your Social Security check, it will show this amount, as well as the amount of any payments withheld for Medicare premiums.
  • RRB-1099: Payments by the Railroad Retirement Board. The form RRB-1099 is similar to the form SSA-1099 but is used to report the Social Security Equivalent Benefit (SSEB) portion. These are benefits equal to the social security benefit that a railroad employee or beneficiary would have been entitled to receive under the social security system.
  • RRB-1099R: Pension and Annuity Income by the Railroad Retirement Board. The form RRB-1099R, which is usually attached to a form RRB-1099, is used to report "non-social security equivalent benefits," Tier 2 benefits, vested dual benefits and supplemental annuity benefits. Usually, these are similar to pension benefits.
Form 1098 series

While the form 1099 series usually represents income you need to report on your federal income tax return, the form 1098 series represents expenses you paid or incurred that may result in tax deductions or tax credits. Here's an explanation of the series:
  • 1098: Mortgage Interest Statement. The most popular of the 1098 forms is the mortgage interest statement. On this form you'll find the amount of interest you paid on a qualified home mortgage loan; this tends to be one of the largest amounts you'll report on your Schedule A. The form may also include "points" paid during the year on your loan.
  • 1098-C: Contributions of Motor Vehicles, Boats and Airplanes. If you donate a vehicle, boat, or airplane with a fair market value of more than $500 to a qualified charitable organization, you'll receive a form 1098-C. The value and timing of your deduction may be dependent on whether the charity sells the vehicle or not.
  • 1098-E: Student Loan Interest Statement. The form 1098-E form is near and dear to my heart, as it reports the amount of interest paid on a qualified student loan. The proceeds from the loan must have been used to pay qualified education expenses, which include tuition and fees, room and board, books, supplies and other necessary expenses, including transportation.
  • 1098-T: Tuition Statement. If you plan to claim the tuition and fees deduction, or if you're claiming the American Opportunity Credit or the lifetime learning credit, you'll need the form 1098-T. On this form, your school will report either the total amount it actually received for qualified education expense or the amount billed. If you receive grants or other offsets, those may be reported on this form and you may have to make adjustments in figuring your credit.
Don't let these stacks of paper overwhelm you. Consider keeping income related forms (like the forms W-2 and 1099) separate from expense related forms (like the forms 1098). Whether you use a tax professional or tackle the returns yourself using software, having a handle on the various forms you're dealing with can help you stay organized at tax time.

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