The 1099 form is a way to report certain non-payroll income to the IRS, and it is often used by contractors and investors. If you've never received one of these forms, then you need to prepare yourself for the possibility. However, if you have received a 1099 form before, then expect to see some changes in 2012.

SEE: Tax Tips For The Individual Investor

Many people receive the form 1099-B since it is sent when an investor sells a stock in a non-retirement account. In 2011, some changes were made to the 1099-B. One of the most important changes was the addition of Box 5, which asks your broker to report all disallowed losses based on a same or similar-CUSIP buy within 30-days preceding or following the loss sale.

The new 1099-B will also require brokers to report the adjusted cost basis on certain stock sales. While this will help many taxpayers more easily determine their gain and resulting tax liability, many others will find that their sold stocks were not considered "covered" and were, therefore, exempt from the requirement.

Some cancelled or forgiven debts are reportable on form 1099-C. This includes both credit card and mortgage debt that was canceled. If you receive a 1099-C after a short sale or foreclosure of your home, then the IRS will allow you to exclude the forgiven debt as long as it was created on your primary home because the Mortgage Forgiveness Debt Relief Act of 2007 allows that for short sales and foreclosures through 2012.

If the canceled debt that prompted the 1099-C was from a credit card or other debt, then you may still be permitted to exclude it if you were forgiven due to bankruptcy or insolvency, or if it was a non-recourse loan.

Credit card and payment processors, such as Paypal, are being required to send a 1099-K for those who received $20,000 in gross payments and 200 payments over the course of a year. It's important to note that both of these qualifiers must be met in order to prompt a 1099-K. This policy was designed to crack down on businesses and individuals who are under-reporting their income earned online.

According to Paypal, only payments for goods and/or services are being counted. Therefore, if you use a single Paypal account for both business and personal transactions, these transactions will be segregated when it comes time to determine whether you need a 1099-K. Additionally, multiple accounts with the same tax identification number are being evaluated, so your cumulative totals across multiple accounts will be considered.

1099 For Frequent Flier Rewards
Generally, credit card rewards are considered to be rebates, which means they are not taxable. However, if you earn an incentive, or reward, for opening an account with a financial institution then you aren't spending any money on a purchase, so the reward can't be classified as a rebate and may be taxable if it meets a certain cost threshold.

Recently, Citibank has had to send 1099s to customers who opened an account with them and received airline miles as a reward. If you were one of those customers, then consider talking to your accountant about your tax liability.

The Bottom Line
It's not easy to do your taxes alone and navigate through the quagmire of 1099s. Exemptions and tax form changes do not make the process any easier. If you feel like your taxes are beyond your ability to report correctly, then get help with your taxes through a CPA or tax program, so you can be compliant and avoid problems later.

Related Articles
  1. Savings

    How Parents Can Help Adult Children Buy a Home

    Owning a home isn't easy thanks to stringent lending standards. Thankfully, there's ways parents can help their kids buy a home.
  2. Credit & Loans

    HARP Loan Program: Help for Underwater Mortgages

    If you are underwater on your mortgage, this program may be just what you need to help build up equity in your home.
  3. Insurance

    6 Reasons To Avoid Private Mortgage Insurance

    This costly coverage protects your mortgage lender - not you.
  4. Credit & Loans

    Pre-Qualified Vs. Pre-Approved - What's The Difference?

    These terms may sound the same, but they mean very different things for homebuyers.
  5. Home & Auto

    9 Things You Need To Know About Homeowners' Associations

    Restrictive rules and high fees are just some of the things to watch out for before joining an HOA.
  6. Home & Auto

    Should You Buy A House At Auction?

    In theory, many of the best properties are auctioned. But auctioned properties aren’t always hidden gems.
  7. Credit & Loans

    Adjustable Rate Mortgage: What Happens When Interest Rates Go Up

    Adjustable rate mortgages can save borrowers money, but they can't go into it blind. In order to benefit from an ARM, you have to understand how it works.
  8. Taxes

    Before You Visit Your Tax Preparer: Do This

    The earlier you start preparing your tax records and documents, the more likely you are to have a smooth tax return experience – and all the tax benefits you're due.
  9. Economics

    What to Expect From Mortgage Rates in 2016

    Understand the factors that influence the direction of mortgage rates, and use this information to project what will happen with rates in 2016.
  10. Professionals

    Becoming a Real Estate Agent Or Mortgage Broker

    Considering a career as either a real estate agent or a mortgage broker? Here are some factors that might help you choose between them.
  1. Can FHA loans be used for investment property?

    Federal Housing Administration (FHA) loans were created to promote homeownership. These loans have lower down payment requirements ... Read Full Answer >>
  2. Do FHA loans have private mortgage insurance (PMI)?

    he When you make a down payment from 3 to 20% of the value of your home and take out a Federal Housing Administration (FHA) ... Read Full Answer >>
  3. How many FHA loans can I have?

    Generally, the Federal Housing Administration (FHA) does not insure more than one mortgage per borrower. This is to prevent ... Read Full Answer >>
  4. Are FHA loans assumable?

    Loans insured by the Federal Housing Administration (FHA) on or after Dec. 15, 1989, are assumable by qualifying borrowers. ... Read Full Answer >>
  5. How accurate are online mortgage calculators?

    Online mortgage calculators are accurate to the extent that the calculator itself is asking for the right pieces of information ... Read Full Answer >>
  6. Are mortgage rates negotiable?

    Mortgages are just as negotiable as any other product or service. Whether it's a new home purchase or refinancing of an existing ... Read Full Answer >>
Trading Center