Q: Tax forms have started coming. What do I need and where do I start?
A: This is a tough time of year for people who hate paper. Sorting out what’s important is a big challenge, and it gets harder if you don’t know what’s what.
Fortunately, it’s easier to tell these forms apart than you think. Here are the four most common tax forms you’ll see and what to do with them:
This is the most common tax form – a statement from your employer that contains your yearly wages, how much tax was withheld and how much you paid (pre-tax) for things like health care premiums. This may be the only major tax form you receive.
It’s also one of the most important forms. Keep it with other tax documents until filing time.
1099s identify income from sources other than contract jobs. Most common is the 1099-INT, which lists interest income. You may get a 1099-INT from your financial institution if you earned interest last year.
If you freelance or work as a contractor, you’ll probably receive a 1099-MISC. There are several more 1099s, such as a 1099-G for unemployment or another source of government income and a 1099-C for canceled debt.
Hold on to these forms, too. You’ll need the amounts of untaxed income when you’re ready to file.
1095s deal with health insurance. Form 1095-A is for insurance purchased through a marketplace exchange. 1095-B is for private health insurance. 1095-C is for employer-sponsored health-care coverage.
These forms are important if you get a health insurance subsidy through the Affordable Care Act. If not, you can file this form; you’ll only need it if issues arise regarding your coverage.
The 1098 and the 1098-T report tax-deductible expenses. The 1098 lists mortgage interest and points on your primary residence, while the 1098-T itemizes tuition and other expenses paid to institutions of higher learning. The 1098-T is used in several places, including claiming the Hope Credit.
To claim mortgage-related deductions, you’ll need to itemize your deductions. Claiming the deductions on the 1098 requires forgoing the standard deduction, which is usually a bad idea. Unless you have a host of other deductions, or you bought or refinanced your home this year, it’s best to claim the standard deduction and file the 1098.
Keep all necessary forms together until you’re ready to file. Remember to keep your returns for at least three years after you file.