If you earned money from a source other than your regular 9-to-5, such as investments or freelance work, be on the lookout for certain kinds of tax documents in the mail. You don't want to file without them in hand.
A 1099 tax form is an umbrella term for documents that report various types of income you may receive throughout the year. These are different than the W-2 form you'll receive from your employer, and the most common reasons for receiving them include: interest earned on savings accounts, dividends earned on investments, and income you earned working in the gig economy as a freelancer, independent contractor, or side hustler.
Your 1099s should be arriving soon, if they haven't already. Here's what you need to know about the most common varieties.
There are more than a dozen different kinds of 1099 forms, which cover some common and pretty uncommon sources of income. Here's a breakdown of some of the reasons you might receive one of these documents:
Video by Euralis Weekes
The IRS expects you to report all of your income, so you need to have a good understanding of what 1099s you're expecting. That will help ensure you don't miss something, and put yourself at risk of penalties or an audit.
There are some less common income situations not listed above that you could receive a different 1099 form for, so you should check the IRS website for a full list. In general, expect one of these forms for "anywhere you made money outside of your job," says Lisa Greene-Lewis, a certified public accountant and tax expert at TurboTax.
What's more, some people may overlook common sources of income, like trading cryptocurrencies and the interest earned on savings accounts, Greene-Lewis says. Plus, some people may not realize that their investing activity triggers a taxable event.
Video by David Fang
These 1099 forms are especially important for millennials, which are the largest-growing group of TurboTax users who are filing a Schedule D, which documents capital gains and losses, Greene-Lewis says. That's partly because of the growth of automated investing services, like robo-advisors, she adds.
"We're seeing growth in the number of millennials who are investing," Greene-Lewis says.
Another problem with a 1099 can be that taxpayers don't receive it. Tax documents that arrive late or are missing in action are the fourth-largest concern among enrolled tax agents, according to a 2019 survey of such preparers by the National Association of Enrolled Agents (NAEA). Enrolled tax agents are tax pros that the government authorizes to represent people in matters before the IRS, like audits and appeals.
Businesses are only required to issue you a 1099 if they have paid you more than $600, so there may be some income you need to report even without a form in hand. And don't forget about your inbox. Some entities will make 1099 forms available online rather than mail it, while you may have elected to receive these types of documents electronically from providers.
If this is the first time you've received 1099 forms, you can make future tax seasons easier by making note of which financial institutions or companies you expect to receive these forms from again in the future. Gathering information about all of your sources of income early on can help to make filing your taxes painless.
Video by Stephen Parkhurst
In addition, if you had any tax surprises, you may want to be savvy about your investments this year. There are legal strategies — such as contributing to an IRA, contributing to a health savings account, and contributing more toward your 401(k) — that can save you money in the future.
More from Grow: