We’ve previously talked about Form 1098, the different types, and FAQs to help you with your filing every year. But this time, we wanted to focus on some common 1098 filing mistakes and how to avoid (or fix) them before they become a bigger or recurring problem. Need help with your 1098 filing? Contact the experts at eFile360 today!
Common 1098 Filing Mistakes: Uncertainty about Reportable Points
There are several confusing concepts within the 1098 filing process, as with many information returns. And one of those concepts is the who, how, and exceptions that surround reportable points for mortgage interest.
A qualified person or lender of record must file Form 1098 to report all points paid in connection with the purchase of a principal residence, according to the IRS. This applies to anyone in business to collect these interest payments if the total reaches or exceeds $600 in points or other mortgage interest. Individuals and private owners who are paid for a mortgage will not need to worry about Form 1098.
Several conditions must be met to create a scenario for reportable points, as well as several exceptions, all of which are outlined at this IRS link.
Failing to File for an Extension
If there are errors on the 1098s you send out or receive, they may result in a taxpayer’s need to file an extension.
If information forms have incorrect information or errors in the calculations or other reportable amounts, it’s important to get those extension requests in sooner rather than later. It’s always better to have it and not need it than to need it and not have it, as they say.
If you can’t make the April 18th deadline for 2023, or if you’re worried you won’t have your corrected current tax year information returns in enough time to meet that deadline, you should start the extension process as soon as possible.
The penalty for failing to file your tax return on time is 5% of your unpaid taxes for each month you are late, with a possible cumulative penalty of 25%. And since no one likes paying more in taxes than they have to, it’s important to seek out your trusted tax expert and keep your eyes on the calendar to ensure you don’t miss important information return and tax return filing dates.
The credits and eligibility associated with 1098 forms have changed over the years (most recently in 2021. Right now, taxpayers and the IRS are working through 1098s and tax filing for the tax year 2022, but it has released an initial draft for 1098-E and 1098-T.
Regardless of whether you have filed any 1098s in the past, it’s important to know what the eligibility thresholds are. The following thresholds stood true for the tax year 2022.
For the 1098-E the adjusted gross income phase-out range for student loan interest taxation was increased to $145,000 through $175,000 for married filing jointly. The range for single filers was $70,000 to $85,000. This is likely to go up if 2022-2023 inflation adjustments continue to take effect.
For 2022, the credits for tuition and related payments (reported on Form 1098-T) phase out between $80,000 and $90,000 for single filers and for married joint filers between $160,000 and $180,000. For filers whose AGI (adjusted gross income) tops the $90,000 or $180,000 threshold, the credit is unavailable.
Misunderstanding the Exceptions to 1098 Taxable Income Amounts
One thing that often creates the most common 1098 filing mistakes is misunderstanding the exceptions. You don’t need to file Form 1098 if the interest was received from any of the following:
- Trust or estate
- Companies other than sole proprietors
This exception stands even if someone is a co-borrower and all the “trustees, beneficiaries, partners, members, or shareholders of the payer of record are individuals,” according to the IRS.
Filing the Wrong 1098 Form
There are 7 different types of 1098 information return forms, with the most common being:
- 1098 – Mortgage Interest: mortgage companies send these to individuals if those individuals paid more than $600 in mortgage interest in the tax year at hand.
- 1098–C – Contributions of Motor Vehicles, Boats, and Airplanes: this applies to any donation of a car, boat, or airplane worth more than $500 to a charity.
- 1098–T – Tuition Statement: recipients of this form can claim education credits if they paid tuition to an eligible institution of higher education.
eFile360 can help you with all your 1098, 1099, W-2, and ACA forms filing for the tax year 2023 and beyond. We are the safest and most cost-effective e-filing service for your information returns, with options for volume pricing.
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