Why Do Investment Firms Issue 1099 Forms?

A 1099 form is used to report payments made to independent contractors or for reporting interest earned on bank accounts and investments. As such you would receive a 1099 if you earned income on any of your investments in the previous financial year.

The company completing the form provides copies of the 1099 to both the recipient of the payments and to the IRS, as well as local taxing bodies and the residential state. Failing to report income from a 1099 is a red flag for the IRS and is likely to generate an audit.

Investment income reported upon the 1099 includes dividends and similar payments issued throughout a specific tax year. The income is considered one of the investor’s tax liabilities.

There are actually several different types of 1099 forms, depending upon your investments, employment situation and other factors:

A 1099-R reports upon payments from profit sharing plans, IRAs, annuities, insurance contracts or pensions.

A 1099-INT breaks down the different types of interest income and its related expenses. These are issued when at least $10 of interest has been earned during the course of the year.

A 1099-Misc is used to report non-employee compensation.

A 1099-B summarizes the proceeds of a stock transaction.

Brokerages, investment firms and employers are required to send out these forms by January 31 of the current year in order to allow recipients to file their taxes properly. Some companies provide links to the forms on their websites as well, allowing investors to access them at all times.

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