An informational return is a tax form a business fills out telling the IRS and state governments that a taxpayer earned a type of income and certain types of expenses/payments. Types of income can range from dividends, interest, wages, self-employed income, rental income, income from education savings programs, cancellation of debt and more…. Some of the payments can be mortgage interest and real estate taxes, payments for education, health insurance from the marketplace.
Enter in the IRS matching program: These informational returns are then sent to the IRS and state. The government can now see what types of income you were paid, and this also gives them an idea of what income they can expect to see on your return. The IRS then matches what they have on file with the information you put on your tax return. When there is a mismatch, that will generate a notice asking for a correction and/or explanation. Then the appropriate steps can be taken.
These informational returns also help reconstruct tax returns when you haven’t filed in several years and you have lost the forms for a variety of reasons.
So, when tax time comes, it is important you give all these informational returns to your tax preparer so the information can be put on your return to avoid mismatching.
Some of the forms include but not all inclusive are the 1099 series: DIV, INT, B, C, A, MISC, NEC (new in 2020), Form 1098 from mortgage companies, K-1’s from S-Corps, partnerships and estates.
Also, the IRS will be rolling out a new tax form for digital assets soon.
