Tax time can prove confusing for many, but this confusion is not necessary and with a little bit of knowledge about which types of earners should use what tax form the process can be made as painless as possible.
1040EZ Form: The 1040EZ tax form is the most simple tax form and is intended for people with simple income streams and standard deductions. This form is the most basic way to file your taxes but not everyone can use it. Remember that the 1040EZ is not intended for the head of the household, those who are over 65 years of age, or those who have a spouse over 65 years of age. The 1040EZ allows the filer to claim the Earned Income Tax Credit (EITC), but deductible IRA contributions are still deductions and cannot be handled with this basic tax form.
You can use the 1040 EZ tax form if:
- Taxable income is less than $100,000.
- Interest income falls below $1,500.
- Filing Status is single or married filing jointly.
- You and your spouse are under 65 years of age.
- Income only comes in the form of wages, unemployment benefits, interest, and Alaska’s Permanent Fund dividends.
- There are no adjustments to your income.
- Claiming only standard deductions.
- Claiming no tax credits other than the Earned Income Tax Credit (EITC). You do not have to claim this tax credit in order to file a 1040EZ, but it is the only tax credit you can claim on this form.
1040A Form: The 1040A tax form is designed for the majority of American’s tax filing needs. The form is slightly more complicated than the very basic 1040EZ, but most people should still be able to file the form without the help of a professional tax preparer. The 1040A allows for most income types, adjustments and tax credits.
You should fill out the 1040A tax form if you have income from the following sources:
- Capital gains from mutual funds.
- Interest over $1,500.
You should use the 1040A tax form if you can claim the following adjustments to your income:
- Interest on student loans.
- Penalty for early savings withdrawals.
- Pay from an employer to compensate for jury duty.
You should use the 1040A tax for if you can claim the following tax credits:
- Retirement savings contribution credits.
- Credits for the elderly and/or disabled.
- Child and dependent care credits.
- Child tax credits.
- Education credits.
1040 Form: The 1040 is a long way of filing taxes for those with complex financial situations. The form may require professional assistance due to the intricacies that it entails, especially when dealing with itemized deductions. The 1040 long form covers all forms of income streams, tax credits, deductions and adjustments.
You need to fill out the long form 1040 tax form if:
- Taxable income exceeds $100,000.
- Sold any capital investments including stocks, bonds, mutual funds or property.
- Itemizing your deductions. Deductions include those for home mortgage interest, medical expenses, charitable contributions and state and local taxes.
- Income from sources other than wages. Income from business endeavors, farmland, rental properties, S-corporations, trusts, and partnerships should be included here.
- Claiming tax adjustments to personal income. These adjustments include those for educational expenses, tuition and associated fees, moving expenses and health savings accounts.
- You have earned any foreign wages, paid any foreign taxes, or are claiming tax treaty benefits.
The contributor always tries to put a witty quote about taxation or representation in the memo line of any checks to the IRS.
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