The IRS wants to make sure that the government gets its cut of your income, and that means that you are supposed report all of it. Hopefully, you keep your own records about what you’ve been making — and hopefully the records are accurate.
You will also receive paperwork from those who have paid you money. The most common forms you are likely to receive are the W-2 and the 1099. Your W-2 comes from a more traditional employer. If you have a “regular” job, you are likely to see this document, which includes your compensation, as well as what’s been withheld.
If you receive tips, you’re supposed to report those as well, even though your employer might not have access to all the information. Many restaurants and service providers (like salons) have ways for employees to report their tips for each shift at the end, and those can be included on the W-2. Even if your tips aren’t included on your W-2, though, the IRS still excepts you to report them.
Income from your work as a contractor, or from interest, is reported on a 1099 form. There are different types of 1099 forms, each with a different purpose. Here are some of the more common 1099 forms that you are likely to receive:
- 1099-MISC: This is the form you are likely to see if you are contractor. Freelancers and others receive this form from those that hire them. 1099s are usually only issued to you if you are paid more than $600 from a client.
- 1099-INT: If you received at least $10 in interest during the year, you will receive this form. Many banks send these forms out when you’ve received interest from a savings account or a CD, or any other type of interest bearing account.
- 1099-DIV: Your dividend income is reported on this particular 1099 form. Capital gains distributions and and nontaxable distributions are also included.
- 1099-B: When you barter, you are expected to report the income as well. 1099-B is also used to report sales of securities, as well as commodity and futures transactions.
- 1099-C: Did someone forgive your debt? If so, it is considered income. If you received loan forgiveness of more than $600, that should be reported — and you need to pay taxes on it.
- 1099-K: This brand new form was instituted starting with tax year 2011. Third party payment processors, like PayPal and some banks, are required to send 1099s to sellers that do more than $20,000 in annual sales and 200 transactions. One of the main reasons this new form was instituted was to ensure that sellers, like those who work on eBay, have their income reported.
Remember that even though you may not receive a 1099, it might still have gone to the IRS. As a result, you want to be as accurate as possible when reporting your income on your 1040. If the IRS sees that you appear to have made more money than you are reporting — due to the information it has received — you could be audited. Make sure you have records to back up your information, and you should be able to weather any audit.