IRS information returns (aka 1099s) are forms that collect and report information about financial transactions outside salary and wages. They help the IRS keep track of events that are likely to be taxable so it can hold taxpayers accountable for underreporting.
If you are responsible for filing 1099s this year, here are some common pitfalls you should know ahead of time so you don’t fall victim to them. Plus, learn where you can find expert tax help if you need it.
Missing the due date
You need to file 1099s forms by February 28, 2020, if you are filing them on paper and April 1, 2020, if you are filing them electronically.
To meet the mailing deadline, the form(s) must be addressed correctly and mailed on or before the due date. If it falls on a weekend or holiday, the due date will be the next business day.
If you’re going to need more time, you can file a 30-day extension by completing Form 8809 before the original due date.
A tax relief company can help if you are behind in your taxes. The best tax relief firms have tax preparation departments to help you catch up with back taxes in the most tax-efficient way possible.
Filing by mail vs. filing electronically
If you file your 1099 by mail when you’re required to file electronically, you can face a penalty of up to $270 per information return that is over the limit.
How do you know which way you need to file?
You’re required to file electronically if you have 250 or more of the same type of 1099 form. But you can request a waiver so that you can still file by mail even if you exceed the limit.
To do so, complete and submit Form 8508 at least 45 days before the due date of your returns.
Ensure that you properly file all of the required 1099s and that you are aware of any 1099s which will be filed for you.
Filing the wrong type of 1099 form
Many types of 1099 forms exist, and filing the wrong form is a common pitfall. So to avoid problems, fines, and delays, you’ll want to make sure you file the right forms.
Here’s a quick rundown of the different types:
1099-A (Acquisition or Abandonment of Secured Property)
If a business lends money relating to its trade and receives interest in a property as security for the debt, it must file this form.
1099-B (Proceeds From Broker and Barter Exchange Transactions)
Mutual funds companies and brokers must file a 1099-B when a client sells stock.
1099-C (Cancellation of Debt)
Financial entities must file this form if they cancel a debt for a debtor that amounts to $600 or more.
1099-CAP (Changes in Corporate Control and Capital Structure)
A corporation files this form when it undergoes a substantial change in capital structure or if it was acquired.
1099-DIV (Dividends and Distributions)
This form is issued by a broker or mutual funds company when a stock pays dividends or a mutual fund pays a capital gains distribution.
1099-G (Certain Government Payments)
This form is used to report state and local income tax refunds, taxable grants, agricultural payments, and unemployment compensation.
1099-H (Health Coverage Tax Credit (HCTC) Advance Payments)
This form must be filed if a person receives advanced qualified health insurance payments for the benefit of certain programs.
1099-INT (Interest Income)
Financial institutions must file this form when they pay more than $10 in interest to an account holder.
1099-K (Merchant Card and Third Party Network Payments)
Third-party payment processors, like PayPal, file this form when a business conducts more than 200 transactions or has more than $20,000 in sales for the year.
1099-LTC (Long-Term Care and Accelerated Death Benefits)
Payers of long-term care benefits must file this form.
1099-MISC (Miscellaneous Income)
Clients who pay independent contractors more than $600 must file this form.
1099-OID (Original Issue Discount)
Holders of debt instruments submit this form if debts are discounted at purchase.
1099-PATR (Taxable Distributions Received From Cooperatives)
Cooperatives must file this form if they pay at least $10 in patronage dividends (or other distributions) to any person, or if they withheld any federal income tax under the backup withholding rules.
1099-Q (Payments From Qualified Education Programs (Under Sections 529 and 530))
This IRS form is filed when someone contributes money to a Coverdell Education Savings Account (ESA) or 529 plan and designates a beneficiary.
1099-R (Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.)
This form is filed by retirement companies when a person takes a distribution from a retirement plan.
1099-SA (Distributions From an HSA, Archer MSA, or Medicare Advantage MSA)
HSA, Archer MSA, and Medicare Advantage HSA must file this form when they administer distributions.
Making mistakes on the 1099-form
When you file by mail, a machine will process your form. Being so, it needs to be filled out correctly and in a way that the machine can understand. The IRS says that handwritten forms often end up with name/TIN mismatches.
Here are a few tips to help you avoid mistakes:
- Use black ink.
- All dollar entries should have a decimal point with two values after the decimal (000.00) but no dollar sign.
- Leave boxes blank if they don’t apply.
- Use block print, not script characters.
- When typing, use 12-point Courier font.
- Enter data in the middle of the blocks.
- Do not enter number signs.
- Do not use staples on any forms.
- Send all pages of a required form even if some don’t apply to you.
- Photocopies of forms are not acceptable.
- Use the current year’s form.
- Double check all information on all forms for accuracy.
If you aren’t feeling confident in properly filling out your forms, it may be a good idea to look for some help.
Need help with your taxes?
Filing taxes can be confusing, especially when you throw 1099 information returns in the mix.
If you’d like professional assistance to help ease the process and ensure everything is done right the first time, enlist the help of a tax expert. While it may cost you a bit up front, it often saves taxpayers money, time, and stress in the long run.
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Jessica Walrack is a personal finance writer at SuperMoney, The Simple Dollar, Interest.com, Commonbond, Bankrate, NextAdvisor, Guardian, Personalloans.org and many others. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and fun.