It is necessary to have a W-2 or 1099 form when using tax preparation software because these forms provide essential, official documentation of income earned and taxes withheld during the year. The software relies on the precise information from W-2 and 1099 forms to accurately report income, calculate tax liability, and ensure the tax return complies with IRS requirements. Key reasons include:
- Accurate income reporting: W-2 forms show wages and tax withholdings from employers for employees, while 1099 forms show income earned by independent contractors or freelancers. Having these forms ensures all income is reported correctly on the tax return.
- Correct tax calculation: The data on these forms allows the software to calculate the correct amount of taxes owed or refunds due, factoring in withholding and self-employment taxes as applicable.
- IRS data matching: The IRS receives copies of these forms from employers and clients, so the software uses them to validate taxpayer entries against IRS records to reduce errors and audit risks.
- Streamlining and error reduction: Tax software auto-fills fields based on form data, minimizing manual entry mistakes and simplifying claiming deductions and credits.
Without these forms, it would be difficult to file an accurate and compliant tax return using software, increasing the chances of errors, audits, and penalties.
