Don't Forget To Include Non-Wage Income When Doing A Tax Return

Everyone remembers to use wage income (W-2s) for filing a federal income tax return. As wealth grows, one will often receive income from other sources that are often reported on a 1099 form. People sometimes forget about 1099 income because they "didn't get to spend it," as in the case of CD interest or reinvested mutual fund dividends. However, the IRS considers 1099 income taxable and expects it to be reported when filing a tax return.

Here are some of the 1099s I've seen and the type income reported on a them:

1099-B - This is form income from a brokerage account. It includes interest, dividends and sales of stock. Often, the form does not include information on the original cost of the sold stock. For reference, it is important for the taxpayer to have the price paid for the stock. Otherwise, the IRS considers all the proceeds from a stock sale taxable.

1099 -C - This is for income due to the cancellation of debt. That's right, if a bank, credit card company or individual forgives debt, it is considered income for the debtor. Exceptions to being taxable include if the forgiven debt can be considered a "gift" (from an individual) or if the debt forgiven is less than the insolvency of the debtor.

1099-INT - This is for interest received from bank, CD, and money market accounts.

1099-DIV - This is for dividends received from stock that is owned directly, i.e. where the shares are listed in one's name.

1099-G - Typically used for unemployment income or state/local tax refunds. Yes, unemployment income is taxable. State/local tax refunds may be taxable if one used itemized deductions for the previous year's tax return.

1099-MISC - This is used for non-employee compensation. Essentially, one is being paid as a contractor. The taxable amount can be reduced by deducting expenses (e.g. supplies) to do the work, resulting in net taxable income. Also, one will need to pay self-employment taxes (social security and medicare) for the net income from a 1099-MISC.

1099-R - This is for income from a retirement account, usually a pension, IRA or 401k. Retirees and people who take early distributions will receive this 1099. Unfortunately, early distributions also result in 10% penalty, over what is owed for taxes.

This is not a complete list of 1099s and the types of income. For a more comprehensive list of 1099 forms and associated income, see the IRS Guide to Information Returns. Remember, in the absence of additional information, the IRS considers all income reported on a 1099 taxable. For 1099-B, C and MISC, the income may be reduced with the appropriate information, resulting in a net taxable income that is less than the reported amount.

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This is not financial or tax advice. Please consult a professional advisor.

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