Form 2012: Fill & Download for Free

IRS Publication 17, http://www.irs.gov/pub/irs-pdf/p17.pdf, tells you everything that you'd ever want to know about the deductions and credits that are available to the US taxpayer.Writeoffs fall into several different categories:1. so-called "above the line" deductions, available to everybody regardless of whether or not they itemize. These appear on lines 23-36 of Form 1040 (see http://www.irs.gov/pub/irs-pdf/f1040.pdf), and include such things as qualifying educator expenses, contributions to an IRA, moving expenses, and student loan interest.2. itemized deductions, which are taken on Schedule A (see http://www.irs.gov/pub/irs-pdf/f1040sa.pdf) when they exceed the standard deduction, or when married filing separately and the spouse also itemizes. These include medical expenses exceeding 7.5% of adjusted gross income, state and local taxes paid, qualifying mortgage interest, investment interest, charitable contributions, casualty and theft losses, job hunting expenses and other miscellaneous deductions (including tax prep fees!) in excess of 2% of adjusted gross income, and other miscellaneous deductions that you can take regardless of income.3. tax credits. These reduce your tax directly, rather than being written off against your income. Some of these are nonrefundable (which means you don't get them if you have no tax liability), including credit for child and dependent care expenses, the Lifetime Learning credit, credit for retirement savings (the so-called "saver's credit" available to low-income earners with contributions to an IRS or 401k), and credit for energy-efficient improvements to your primary residence. Others are refundable, such as the Earned Income Tax Credit and the Making Work Pay credit, which means you get it whether you have any tax liability or not. Some are both - the American Opportunity Credit, which is an education credit available to certain college students, has a nonrefundable and a refundable component, as does the child tax credit.There may also be additional writeoffs available on your state taxes; for example, in North Carolina unpaid volunteer firefighters and rescue squad workers are entitled to a deduction of $250 if they spent a minimum amount of time in training during the year, and you are also allowed a deduction for contributions to a North Carolina 529 plan. Check with a tax professional in your local area or visit your state's Web site; most if not all have state tax information online.EDIT: The title of the question was changed since I wrote the answer three years ago, so I am editing my answer to extend it to the title change.There is no such thing as a "1099 tax" - just as there is no such thing as "being paid on a 1099" or "being paid on a W-2" for that matter. There are a variety of Forms 1099, and they are information returns that a payor submits to the IRS to report certain types of payments, with a copy provided to the payee. For example, interest paid on a financial account is reported by the financial institution to the account owner on Form 1099-INT - but whether and to what extent that interest is taxable depends on the type of interest income that is being reported. Similar, dividend payments are reported on Form 1099-DIV - but the tax treatment of that income depends on the type of dividend income that is reported.And certain types of miscellaneous payments - including payments to nonemployees for services rendered to a business - are reported by the business on Form 1099-MISC. The tax treatment of income reported on Form 1099-MISC depends on the type of income that is being reported on the form (which is used for many other types of payments besides compensation to nonemployees for services rendered).When people talk about "1099 tax" and "being paid on a 1099", they are talking about a very specific type of income - nonemployee compensation that is often (but not always required to be) reported in Box 7 of Form 1099-MISC. My answer here is limited to that specific reporting combination and should not be taken as applicable to any other income reported on Form 1099-MISC, or to any other income reported on any other Form 1099.Nonemployee compensation reported in Box 7 of Form 1099-MISC is treated as self-employment income by the recipient. It should be reported on Schedule C (Form 1040), Profit or Loss From Business, along with all other income from the same trade or business that is not reported on a Form 1099-MISC. Against that income, the recipient can deduct expenses that arise in the course of conducting that trade or business and that directly relate to the generation of that income; see Deducting Business Expenses and IRS Publication 535 (2012), Business Expenses for a fuller discussion.

Thanks for asking. And you came to the right place, because I actually know the answer. Which is… yes and no. Legally, the federal government taxes “all income from whatever source derived.” (That’s the exact wording from the tax code.) This means income from a legal source, like your job at TGI Fridays or illegal sources, like Jake and Tyrone’s Crack Emporium. Payments to informants from whatever law enforcement agency, the FBI for example, (which pays far better than most of them) are NOT excepted. So, that’s the “No” part of your answer. No, you don’t get to keep the money you earn from snitching.HOWEVER. (Always a however with the government.) When I asked this same question of my superiors, I was told that somewhere in the tax code or accompanying regulations, there is an exception to the standard rule that an employer must issue a W-2 or 1099 form documenting payments made to employees or other persons and report that person’s income to IRS. This makes some sense, as it would otherwise mean that every informant in America would have their (highly confidential) informant status reported to an outside agency (IRS) that could then audit the person or otherwise make his secret informant status a problem. So, the regulations require the government agency (payor) to advise the snitch (payee) that all payments to him constitute taxable income and must be reported on their tax return for that year.HOWEVER (see, I did say there would be howevers) in all my time in law enforcement, I heard this warning given maybe five times by agencies other than the IRS Criminal Investigation Division. I heard FBI and DEA agents give the warning on several occasions when the amount involved was seriously large, tens of thousands of dollars. AND, it was generally caveated by some statement (and a wink) that “we’re not going to tell IRS about this so you’re on your honor to do it yourself.” You can imagine how that plays out in the real world.HOWEVER, (last one) IRS-CID takes this issue much more seriously. If you’re working for them, they not only advise you of the requirement to file a return and report the income, they have the informant sign a form acknowledging that they’ve been told. And, the special agent is supposed to pull the informant’s return next year and make sure the income was reported.Bradley Birkenfeld, a financial advisor with UBS, a major Swiss bank, became an IRS informant after his conviction for tax evasion and provided information that led to the unraveling of UBS’ schemes to help American taxpayers (52,000 of them) evade income taxes. This led to a $780 million penalty against UBS, (and probably billions in taxes collected from the 52,000) and Birkenfeld wanted his share as a reward, something the tax code provides for. After some considerable legal wrangling back and forth (because IRS didn’t want to pay), Birkenfeld won and won big. He got $104 million. This is undoubtedly the Guinness world record for informant payments, but I promise you that IRS made damn sure that he reported every nickel on his 2012 return - and took a sizable chunk of that money back in taxes. (They probably even withheld their share.) So, yes, it was taxed, if not “all taken,” and that’s the answer to your very interesting question.Here’s a picture of Mr. Birkenfeld, the $104 million man (probably about $70 million after taxes, but still….), in his Bureau of Prisons issue uniform, which he’s undoubtedly since traded for something much nicer.

Per IRS Publication 596 (2012), Earned Income Credit (EIC):Earned income includes all of the following types of income.Wages, salaries, tips, and other taxable employee pay. Employee pay is earned income only if it is taxable. Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. But there is an exception for nontaxable combat pay, which you can choose to include in earned income, as explained later in this chapter.Net earnings from self-employment.Gross income received as a statutory employee.If the income that was reported on Form 1099 is one of these types of income, then you include it in your computations to determine whether or not you are eligible for Earned Income Credit. Usually, only income reported on Form 1099-MISC Box 7 (Nonemployee Compensation) qualifies to be included in the computation for EIC. If the income is reported elsewhere on Form 1099-MISC or on a different type of Form 1099, it generally does not qualify as earned income.Note that EIC is based on net earnings from self-employment, not gross earnings. Self-employed individuals are required to take all possible deductions against their earnings from self-employment. Self-employed individuals are also required to report all of their earnings from self-employment, whether they receive Form 1099-MISC for them or not.If you are self-employed, you should always be keeping your own records of income and expenditures against that income; you should never be relying on the numbers reported on a Form 1099. Sometimes companies report payments as Other Income that are actually compensation; sometimes they report payments that you didn't constructively receive until the following year; sometimes they just flat out make mistakes.And one more note - when you are an independent contractor you are not being "paid on a 1099", and when you are an employee you are not being "paid on a W-2". The classification of an individual is based on a number of factors; the form on which income you receive is reported to the IRS is not one of them. See Independent Contractor or Employee for a good description of the differences.