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Understand Your Tax Documents

It’s that time of the year again… Your mailbox has been filling up with tax documents and you may be asking yourself what the heck they’re all for. 

If that’s you right now, don’t worry! You’re not alone! Tax documents can seem complicated when we’ve never really taken the time to understand what each one is for and why you received one (or didn’t).  

Man, wouldn’t it have been great if they taught you all this in school?! But since they didn’t, we’re here to help! 

W-2: Wages

If you are working (and not self-employed or a contractor), you can expect to get this from your employer. 

If you changed jobs during the year or held more than one job in a single tax year, you should receive this (or another tax form below) from each employer you worked for.

This form shows your gross salary, any contributions you made to a retirement plan through payroll, any taxable benefits you may have received from your employer, and how much Social 

Security and Medicare tax you paid. 

1099: Income Sources

There are different 1099 forms to pay attention to:

1099-MISC: Other Income 

If you don’t receive your compensation as wages, you may receive this form instead of a W-2. You would typically receive this form from a business that pays you as a self-employed individual. Income sources generally include rents, prizes and awards, fishing boat proceeds, nonqualified deferred compensation or other income payments. 

1099-NEC: Independent Contractor Income

Another alternative to the W-2 is to work as an independent contractor (a non-employee). In this case, you may receive a 1099-NEC from the business you are working for.

1099-INT: Interest Income 

You typically receive this from your bank where you earn taxable interest.

If you receive more than $10 in interest from any one person or institution, you would receive this form. Interest is received on bank accounts, money market accounts, certificates of deposit (CDs), corporate bonds, treasury bills, and savings bonds.  

1099-DIV: Dividend Income

You typically receive this from a bank or another financial institution where you have dividend income from stock holdings or when a mutual fund distributes capital gains to shareholders.

1099-B: Capital Gains/Losses

If you have an after-tax investment account and made any trades during the tax year, you will likely receive a 1099-B. This form shows any realized capital gains or losses that need to be reported.

**1099 Composite

If you have an after-tax brokerage account (i.e. investment account), you may receive a compiled 1099 that includes a 1099-INT, 1099-DIV, and your 1099-B. 

1099-S: Sale of Real Estate

You receive this form if you sold real estate property. The 1099-S is typically issued by the title company. 

Not all real estate proceeds are taxable, but you should still receive a 1009-S and include the income on your tax return.

1099-Q: Distributions for Education

You receive this form if you take any distributions from a 529 or other Coverdell ESA account. 

The custodian of the account is not required to determine if distributions are for qualified or nonqualified expenses, so make sure to keep good records of what the funds were used for. 

1099-R: Retirement Distributions

You receive this if you took distributions from a retirement account. These include IRAs, pension plans, qualified annuities, 401ks, and other employer sponsored retirement plans. The 1099-R shows the gross amount distributed and any tax withheld. You will receive this even if you do a Rollover from one retirement account to another. 

1099-G: Income from the Government

If you received any income from the state or government, you should expect to receive a 1099-G. Examples might include unemployment income, workers compensation, and family paid leave.

1098: Mortgage Interest Paid

If you own a home and have a mortgage on it, you are likely paying some interest as part of your monthly payment. If so, you will receive a 1098, which shows the amount of mortgage interest you paid during the tax year.

1095: Healthcare Coverage

This shows whether you were covered by a qualified healthcare plan during the year, and if so, for which months and which family members were covered. 

5498: Retirement Contributions

This form is typically generated in May after you have already filed your tax return. It is for your own records to show contributions made to individual retirement accounts (Roth or Traditional IRA) 

W-4: Elect The Level Of Tax Withholding From Your Paycheck

This is the form that tells your employer how much tax to withhold from your paycheck. Each year, we recommend that you review your tax withholding. 

The sweet spot is making sure you have enough tax withheld that you don’t get a nasty tax bill when you file your tax return, but not too much that you are giving an interest-free loan to the government.

Understanding your tax form is the number one step to have a smooth tax season! Now if you think you might need someone to help with your taxes, but you don’t know who or when to ask, click here. We explain the difference between a CPA and a CFP® professional and why you might need them on your team to help you with your taxes!! Read more it might help you save money!

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This blog post is provided for educational, general information, and illustration purposes only. Opinions expressed herein are solely those of Middleton & Company, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness.
Nothing contained in the material constitutes financial or tax advice, a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Middleton & Company, and all rights are reserved.