Tax Documents

Identity Documents

Photo ID:

Social Security Card:

Birth or Death Certificate:

Earned Income

W2:  This is probably the most common tax document, almost all of us have received one of these at some point during our lives.  The W2 is sent by an employer; this can be a business, the government, a non-profit organization, a household or others.  This form will show us the wages earned during the year, federal withholding taxes, employee benefits and state wages and tax withheld.

Wages are shown in boxes 1,3 & 6.  Box 1 is gross wages, the total earned from this organization during the year.  Box 3 shows the gross wages less wage deductions such as a retirement account and is limited by the annual SS limit on wages, 176,100.  The third box is Medicare wages which shows gross wages less the wage deductions without a limit.  Box 6 is the taxable wage amount that ends up on the 1040 tax return.

Box 2 in the upper right-hand corner of the form is the federal income tax withholding.  This is an estimate of your tax obligation to the IRS that is settled each year when you file your form 1040 tax return.  Unlike the Social Security and Medicare deductions, you may get some of this money back if the estimate was too high or you may end up owing the IRS money if the estimate is too low.  The estimate depends on how you filled out the W4 form when you started this job.

It seems to me that in recent years, some taxpayers have had more issues with the amount of income tax withholding.  A change to the system used to estimate the income tax resulted in less withholding which in turn left some people with unexpected tax bills when filing the return.  I don’t understand the reason for this change, but the solution is to adjust the W4 by reducing the dependents or even by switching to filing single rather than married.

Boxes 4 & 6 show the amount of Social Security tax and Medicare tax withheld from your check.  These amounts are matched by your employer and credited to your account.  You can check to see the amount of credit you have received by going online to the My Social Security website.  You need a certain amount of credit for each program to be eligible for benefits.

Boxes 7 & 8 Social security Tips and Allocated Tips

Boxes 10 through 14 show different kinds of benefits the taxpayer received through the employer.  The list of different benefits is long, and it seems to get more complex as the years go by.  Some employers have to print a two-page W2 because there aren’t enough boxes on the current form.  The benefits amounts shown in the boxes do not all have an impact on your tax bill, some are there just for information.

Boxes 15 through 20 show local wages and tax withholding.  Wages can be from multiple states and each state will have its own tax calculation.  When I enter the state information from a W2 into my tax software, the system will automatically generate a return for that state even though you don’t currently reside there.  If you work in Denver or Aurora there will usually be an entry for local tax.  That tax is a per capita tax or the OPT tax, not an income tax and there is no refund or return for that tax.

That covers the information on the form, now I will talk a little about receiving and retaining the form.  Until recently, all forms were sent by mail, and you had to watch for it toward the end of January or pick it up directly from your employer.  Companies began making the documents available online and enabled employees to receive the W2 by email.  Now many companies are getting rid of mail delivery and requiring employees to go online for the document unless you tell them otherwise, maybe.

It has been a few years since I last received a W2, so I only know what I have been told about the problems of getting a W2 these days.  I know that we have all probably noticed how many companies are focused on cutting corners wherever they can.  They should not be allowed to cut corners in this area, but I’m not sure anyone is paying attention to details like this.  If you have a paper form you should probably convert it to an electronic version and save it that way.  Three years is probably enough time for most taxpayers, but if you would like you can save it longer.

The last thing I would like to say about the W2 is that without it I can’t complete the tax return.  On a regular basis I am asked to use the last paycheck, but that is specifically prohibited by the IRS for obvious reasons.  You can go online and get a transcript from the IRS, but the federal transcript does not include state information.  In states that do not have an income tax, this wouldn’t matter, but here in Colorado it does.  If you don’t want to experience a difficult tax season, make sure that you have copies of all W2’s by the second week in February.  If one is missing, track it down at that time, waiting will only make it more difficult to find.

1099-NEC:  This document has only been around in recent years.  The 1099-NEC is used to report payments to contract workers by an organization or individual. This is different than a payment made to a W2 employee and there are many rules to define that difference.  Previously, the information on 1099-NEC was found on 1099-MISC.  I guess that is because of the increase in contract type work lately they decided to give the gig workers their own form.

Every organization that pays a person over $600 for their labor during the year is required to add up those payments at the end of the year and send you and the IRS a 1099-NEC with a total of those payments by January 31.  They usually arrive some time in February.  if you don’t receive an expected 1099-NEC by late February, you should make a call.  If you worked for a large organization, you may have to get it online.  It is best to track down these documents at the beginning of the year.  If you do not receive a 1099-NEC and do not expect to either, the IRS still expects you to report the income on your return.

Box 1, usually the only box on this form with an amount, is the total Nonemployee compensation for the year.  I can’t remember ever seeing an amount in any of the boxes for withholding, 4,5,6 & 7.  If you disagree with the amount in box 1, you can ask for a corrected 1099-NEC or you can account for the difference on the Schedule C.

The amount from box 1 is transferred to the small business tax form, Schedule C on the 1040 return.  To complete the schedule C, we need to look for deductions from the amount paid that will lower the taxable amount of the payment.  These deductions are business expenses such as materials, supplies, vehicle etc that are paid for by cash or credit card.  There is also a home office deduction that can be either calculated or estimated and vehicle expenses can be deducted using one of two methods, actual expenses or mileage.  The income and expenses are totaled on an income statement.

If you receive two 1099-NEC for different types of business activity, for example, driving for uber and selling items on the internet, then both income and expenses must be divided between the two.  If you receive two 1099-NEC forms for similar activities, Lyft and Door Dash, then the amounts can be combined on one Schedule C.

The classification of people receiving payments for their labor, employee vs contract, has been debated a lot recently.  People that earn contract income do not receive company benefits, are not eligible for unemployment insurance and must pay an extra tax of 7.5%.  A person receiving $20 an hour at a W2 job would need to make at least $30 an hour for an equivalent 1099-NEC type job.  If you accept this type of employment, keep good records and make quarterly estimated tax payments.  The great advantage of this type of work is the ability to do your own scheduling and make your own decisions on how best to complete the work.

Profit & Loss Statement:  Statement of Income and Expenses or Income Statement:  This is also called a profit and loss statement and unlike the first two documents, this one is created by the taxpayer.  It can be prepared by the taxpayers themselves or by someone they hire such as a bookkeeper or accountant.  This document shows both income and deductions and is used to complete schedule C.  While the 1099-NEC shows amounts paid to an individual, it may not show all the payments received and does not show any deductions.  When you receive a 1099-NEC this income statement is necessary to complete the tax return.

This document would also be necessary if the taxpayer owns a rental property.  The 1099-MISC is used to report rents paid to an individual, but the property owner would only receive a 1099-MISC with rental income if they were involved in a government program such as section 8, or they have a management company taking care of the property.  Most rental property owners I work with provide both income and expenses.

The hardest part of preparing one of these statements is making sure that all the deductible expenses are accounted for.  When it comes to spending money, we have many options.  You may have multiple credit cards, mobile payment apps and bank accounts that you can use to purchase business supplies or services.  Using these different payment methods for both business and personal reasons will create confusion at the end of the year.

The easiest solution is to keep your business and personal income and expenses separate.  For my business, I have a checking account that I use only for that business.  If I started another business, I would open an account for that business as well. The account has its own atm card and I use that only for business purchases.  At the end of the year, I download the account activity into a spreadsheet, total the income and divide up the expenses by categories such as computer expenses, rent, supplies, etc.  If I use a personal credit card to make a purchase, I need to make a note of the purchase or review my credit card statements and look for business spending.

Another solution is to track your income and expenses on a monthly or even real-time basis.  The technology exists that makes this a much easier task than in the past.  The problem I have found is that most people don’t want to put in the effort it takes to maintain this kind of system.  It’s a better system because you know how much money you are making during the year rather than getting one total at the end of the year.  People who use this method are less likely to overestimate their earnings when being paid as a contractor, which is a very common problem.

1099-MISC:  This form shows miscellaneous payments to the taxpayer that can be earned or unearned taxable income or it may be non-taxable.  Payment amounts in Box 1 Rents, and Box 2 Royalties, the two most popular boxes, are treated in a similar way.  The IRS makes the distinction between whether you are an investor (passive) or a professional (active) in deciding how to tax the amounts found in those first two boxes.

A professional such as a working artist receiving royalties or an owner of real estate that provides significant services to the renter, such as maid service, reports the income on Schedule C.  A taxpayer receiving this form for royalties that aren’t related to your current occupation or rents paid to the owner of a rental home that only collects rents and performs required maintenance, would report the amounts on Schedule E.  The different classifications will change the types of taxes you pay.

The difference between the two classifications here can be compared to the W2 vs 1099-NEC classification.  The IRS has rules that relate to how you generated this income.  The taxpayer or tax preparer then applies those rules to put the taxpayer in a certain taxable category.  The IRS can challenge your interpretation of the rules and decide to recategorize the income.  As is always the case in taxes, good records are your best defense.

Box 3 Other Income can be used for prizes not related to gambling, payments for participation in a study, legal damages, payments from a former employer and many other sources.  Most of these payments will end up on Schedule 1 of the 1040 and while they are subject to the income tax they are probably not subject to employment taxes.

Box 4 Federal income tax withholding will show the tax withheld from the payment and sent to the IRS by the payor.  The amount withheld is applied by the taxpayer to the amount owed to the IRS on their 1040 income tax return.  Most of the 1099-MISC forms that I see do not have any withholding.

Boxes 5 through 15 are used for payments related to specific activities that only relate to a small number of taxpayers like crop insurance and medical payments.  These payments may or may not be taxable.

Boxes 16, 17and 18 are for state specific information.  I have rarely seen any entries in these boxes.

Unearned Income

SSA-1099 & RRB-1099:  These forms are the annual benefits statements from Social Security Administration and the Railroad Retirement Board

Boxes 1 & 2 contain the beneficiaries’ name and number.  It’s important to note the exact spelling of the name as it appears in box 1.  If there is a difference between that and the one on the 1040 return, it may get rejected by the system.

Box 3 is for benefits paid, not necessarily received, during the year.  The calculation for deductions, mainly Medicare, is in the box below box 3.  If there is an amount in box 4, Repaid Benefits, it is subtracted from box 3 to give you the Net Benefits in box 5.  Repaid benefits can arise from earning over the Social Security limit in a previous year or repayment of disability benefits.   Box 6 is the amount of federal tax withholding.

1099-G:  This form is sent by state governments, mostly the Department of Labor unemployment insurance or FAMLI benefits, Department of Revenue tax refunds and federal agencies such as the Department of Agriculture and Department of Labor for different benefit and grant programs.

Box 1 State unemployment compensation is taxable in 2024, I recommend tax withholding, federal and state, if you receive these benefits.  During the pandemic most of these benefits were untaxed, that is no longer the case.  Box 2 is the state refund received during 2024 for the 2023 tax return.  The state refund is taxable only if you itemize deductions on Schedule A.  Box 3 confirms the tax year for box two, it can be confusing.  Box 4 is federal tax withholding.

Boxes 5-9 are used for various government programs.  I don’t think I have ever seen in my office a 1099-G with amounts in these boxes.  Boxes 10 & 11 show state information and tax withholding.

W2-G:  Certain Gambling Winnings is the name of the form.  By certain, I think they mean only gambling winnings over $1200, not that some gambling winnings may be uncertain.  Gambling winnings under $1200 are reportable to the IRS.

The W-2G is different from most of the other forms that give you a total of what happened during the year, this is a specific event.  Box 1 Reported Winnings Box 2 Date Won and Box 3 Type of Wager tells you everything you need to know about this taxable event.  Box 3 is usually Slot in the $10 to $20 range.  Box 4 is Federal Income tax withheld.  I always recommend withholding, especially when alcohol is nearby.  Boxes 5 -12 contain more information about what happened Boxes 13 – 18 contain state and local information.

1099-INT:  This form shows interest, usually from a bank.  The bank will not send a 1099-INT if the interest amount is below $10.  In recent years the IRS has been sending out 1099-INT’s.  Because of late refunds, they have been adding interest to the refund.  This is the only document in this group that originates from the IRS.  The IRS is known for sending letters, not forms.  1099-OID Original Issue Discount is similar to the 1099-INT but is generally issued by a broker for bonds purchased at a discount.

1099-DIV:  Dividends and Distributions are amounts paid by a corporation to a taxpayer who owns stocks or bonds.  Dividends, a thank you for investing in the company, and capital gains Distributions from the sale of an interest.  The 1099-DIV is a form that can show up in at least three different forms.  The corporation issued 1099-DIV’s, are usually sent from a company called CompuServe, a company hired to send out forms for the corporation.  Many of the taxpayers that receive these were part of an employee stock purchase program.

Brokers issue 1099-Div’s in two different forms I have seen.  A consolidated 1099 is issued by a broker to show the results of trading done either by the broker or the taxpayer.  This version of the form combines the 1099-DIV with the 1099-INT and 1099-B Capital Gains and a lot of detail, usually 20 pages.  The other broker issued 1099-DIV is combined with a 1099-B to show the dividend and capital gains earnings of funds like an ETF owned by the taxpayer.  This is usually a one-page document, the details are in the funds.

1099-B:  Proceeds From Broker and Barter Exchange Transactions.  This form is used to calculate capital gains or losses from the sale of stocks, bonds, etc. by a broker.  It is also used to report barter transactions.  The 1099-B is often found on broker statements combined with 1099-DIV and 1099-INT.

1099-R:  Distributions from retirement accounts.  The key to looking at this document is determining if the payments reported on the 1099-R are taxable or not.  While the documents we have discussed report earnings, this form reports distribution from a savings account.  Normally this would not be a taxable event, but because many of these accounts gave you a tax break when the money was deposited, now the withdrawals are taxable.  And on top of that, some of the withdrawals are forced by IRS rules.

K-1:  The K-1 is probably the most complex of all these forms.  This form is used by trusts & estates, partnerships and S Corporations to reports proceeds, income, but can also include deductions.  This form also can be one of the more difficult tax documents to get your hands on.  It’s not that uncommon to see a K-1 that arrives in the summer months.  I guess that makes it the warm weather document.  I am probably seeing more of these lately because of climate change.

Other Income or Payments

1099-K:  K  Payment Card and Third Party Transactions.  This is another fairly new form that has been getting increased attention lately.  If you sell merchandise through a company such as Amazon or Etsy, drive for Door Dash, or other business activities that involve credit cards and their e cousins, you may receive this form.  The last few years have seen the IRS announce requirements for increased distribution of the form, but they have backed down a couple times.  If you receive the document then use it for preparing your taxes, if not report the payments anyway.

1099-PATR:  Taxable Distributions Received From Cooperatives  The forms I have seen have been farm coops.  The payment is similar to a dividend, but it is called a distribution.

1099-C:  Cancellation of Debt  In a group of disliked forms, this may be the most disliked form.  If you owe someone money and they decide against collecting the debt, they can send you this form with the amount of the debt.  This can be a taxable event, and the taxpayer may have to add the debt amount to their income and pay tax on it.

1099-S:  Proceeds From Real Estate Transactions  This form is sent by the title company used for the real estate sale.  Usually these are only sent for commercial transactions but can also be sent for a home sale.

1099-LTC:   Long Term Care Benefit and Accelerated Death Benefits  I don’t like the name of this form.  These are insurance payments that are generally not taxable.

1099-SA:  Distributions from an HAS, Archer MSA, or Medicare Advantage MSA  Most of the time I see this form it is for a Health Saving Account distribution.  The taxpayer needs to tell the IRS, through an entry on the 1040, that the distribution was spent on medical expenses, in which case, the distribution is non-taxable.

1099-Q:  Payments From Qualified Education Programs  These payments, if used for educational purposes are non-taxable.

Deduction and Credit

1098-M:  This form is sent by mortgage companies showing interest paid by the taxpayer for a home and distributions from escrow accounts for property taxes and insurance.

1098-T:  Tuition Statement  Sent by an accredited school, this form will show payments made by the taxpayer, for themselves or a dependent, for tuition.  These payments can generate a tax credit.

1098-E:  Student Loan Interest Payment  Sent by a lender or loan service company, student loan interest is deducted from the taxpayers income, lowering taxable income.

1098-C:  Contributions of Vehicles, Boats and Airplanes  This form is sent by a 501c3 organization, which is approved by the IRS as a non-profit.  The value of the contribution is deducted from the taxpayers income only if deductions are itemized

Deduction Receipts

Charitable contributions:

Child care statement:

EV Purchase dealer invoice:

Energy home improvement receipts:

Medical expenses:

Education and training:

Adoption expenses: