There are over 800 different IRS forms and schedules for reporting various kinds of income, expenses and other financial data and for calculating taxes. However, for purposes of preparing the federal income tax returns, the IRS Form 1040 is the primary document. This comes in three versions: the standard 1040, the 1040A (or “short form”) and the 1040EZ (or “easy form”). The standard 1040 return can be used by every individual, but not the other two which are designed for filers who fall under certain given guidelines and who meet certain specified conditions or rules.
The 1040EZ or “easy form” can be used only if you are single or filing jointly with your spouse, do not have any dependents, and are under the age of 65 at the beginning of the tax filing year. Additionally, your earnings must be less than $100,000 and can only come from wages, tips, scholarships and grants for school, salary, unemployment or the Alaska Permanent Fund. Finally, if you qualify for 1040 and you opt to use it for your filing, you are precluded from claiming any itemized deductions on your tax return.
The 1040A or “short form” can be used if your taxable income is under $100,000 that has been earned from wages, salary, tips, scholarships and fellowship grants, unemployment compensation and the Alaska Permanent Fund, and unlike the 1040EZ, also from capital gains, pensions, IRAs, Social Security benefits and railroad retirement benefits. As with the 1040EZ form, you cannot claim itemize deductions using 1040A. However, you can claim dependents on this form, but only for credits for child care, earned income credit, credits for the elderly and disabled, education and retirement savings contribution credits.
The standard IRS 1040 Form consists of two full pages, plus attachments or “schedules.” In the first page, you calculate your Adjusted Gross Income (AGI) after entering all sources of income like your wages and salary, tips, interest, dividends, alimony, business income, capital gains, IRA and pension distributions, farm income, unemployment income and Social Security benefits, among other earned and unearned income listed in your W-2 and 1099 forms. Once you’ve calculated your total income, you derive your AGI by netting out certain specific deductions or “adjustments,” such as one-half of your self-employment tax payments, your alimony payments, your retirement or IRA contributions, payments for the interest of your student loan, your health savings plan contributions, among others specifically enumerated under the tax code.
In the second page of the standard IRS 1040 Form, you calculate your allowable deductions and credits, along with your tax due given the AGI figure carried over from page one. Then, you compute your tax due, or the amount of tax you owe on your taxable income, by using the applicable tax tables provided by the IRS. Finally, you apply the amount of funds already withheld from your income throughout the year to derive either your remaining tax liability to be paid, or the tax refund you can expect to receive from government.
