Form 1098 is a tax form used by the U.S. Internal Revenue Service; it is used by individuals to claim deductions on tax returns. The forms are used to declare certain types of payments that can be used as deductions. For example, costs paid for education, interest paid on student loans, tax paid on a mortgage, or the value of a vehicle donated to charity are all reported on a form 1098. There are different versions of form 1098, with letters added after the number of the form to indicate what type it is.
The form 1098 is furnished by the company to whom the tax was paid or donation was made. For instance, in a form 1098 used for mortgage interest, the mortgage company or bank creates the 1098. This form is then sent to the individual taxpayer, as well as directly to the Internal Revenue Service. When the individual then creates his or her tax return, another copy of the 1098 may need to be included, unless the taxpayer is filing the tax return electronically. The amount shown on the form 1098 is the amount that can be deducted from the individual's taxable income, up to any limits noted by the IRS, thereby decreasing the amount of income tax that he or she will have to pay for the fiscal year.
The most common version of the form is the Mortgage Interest Statement. This type of form is used to detail the amount of interest that was paid on a mortgage throughout the tax year. The other types of form 1098 include a 1098-T, a 1098-C, and a 1098-E. A 1098-T is used to deduct education expenses or to claim education credits, if one meets the requirements to claim these deductions. Similarly, a 1098-E is used to report interest paid on student loans, some of which can often be deducted from one's taxable income if one earned under a certain amount in the year.
A 1098-C is used for charitable contributions of a boat, vehicle, or plane. The value of the donation typically needs to be more than $500 US Dollars, and a receipt from the charity is required, as well as a note detailing whether the item was sold, or if the charity used it for its own needs. Keep in mind that a form 1098 is simply a starting point for a potential tax deduction; it does not guarantee any tax deduction, and it is important to research the rules and regulations that come with all of these possible deductions.
