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.
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.