How to read 1098 and 1099 tax forms

0:00- [Instructor] Let's talk about a few very common IRS forms or statements that you are likely to encounter in your life. The first one of these you see right over here is called a 1098, and there are different types of 1098 forms. There's a 1098, which is to report mortgage interest that you have paid in the past year.

0:19There's a 1098-T, which is for tuition payments or, or scholarships for students, 1098-E, which is about student loan interest that you might pay and might be deductible. The whole point here is it's about things that you have paid that might be deductible for tax purposes.

0:38So for example, this is a situation where the person, it looks like they have paid $10,000 in mortgage interest that year. So assuming it is deductible for them, if they made from their job, let's say they made $50,000 in wages from their job, given this, assuming it's tax deductible, what is going to be their actual taxable income?

1:07Well, the way a deduction works is you subtract it out from your income to come up with a new number of what is going to be taxed. So your tax isn't gonna go down by $10,000. Your to your taxable income is going to go down by $10,000, which will reduce your taxes by something less than $10,000.

1:32It's probably someplace around 10 to to 30 or 40% of that $10,000, but it's gonna be something less, but it will reduce your taxes. Similarly, a 1098-E if you paid student loan interest and if it's tax deductible, a similar thing might happen. Now, another form, which sounds almost the same but is almost, you could really think of it as the reverse of a 1098 is a 1099.

2:00A 1099 instead of reporting, say interest that you have paid that is tax deductible, a 1099 reports interest or income that you have earned from some sources that you now have to add to your taxable income to make sure you're paying taxes on it. So right over here, this is a 1099-MSC.

2:23You could view that as miscellaneous information. And what's that might be you, let's say you did an event for someone and they paid you money or whatever it might be. They have to fill out this form, report it to the IRS, and they, you could see here that this person or or whoever's getting this form, maybe it's you, you got $10,000 and that no federal tax was withheld.

2:47So you're gonna have to report this and then also have to pay the proportion amount of taxes. So once again, if you go into that situation where before this 1099, if you had made $50,000 from your day job, well now you're going to have to add this $10,000 to your income to get your taxable income at $60,000.

3:12So this is, your taxes aren't going to increase by $10,000, but your, they're gonna increase by some proportion of that. But your taxable income is definitely going to increase by $10,000 in this situation. And like a 1098, there's many different types of 1099s.

3:27There's a 1099-INT short for interest, which I get from my bank every year, which tells me how much money I earned on interest in those accounts. 1099-DIV, which tells you about dividends that you might've gotten from investments, 1099-G if you got payments from the government that you need to report.

3:48So there's more, we could go into more detail. You can look up the details, but the big picture is 1099, 1098 I should say. These are things that you have paid many, many times in the form of interest that might be deductible to your taxable income. And 1099, these are things that someone is paying you.

4:09It's some form of income that you need to get taxed on.