Tax return forms can be intimidating and confusing. Using a tax guide can provide taxpayers a better understanding as to which form or forms should be used as well as knowing what information is needed to complete the tax return. Moreover, having an understanding how the information is processed will help the taxpayer recognize possible errors before the tax return is filed with the Internal Revenue Service (IRS).
To file a tax return, taxpayers will need to file one of the following forms 1040EZ, 1040A, or 1040. Each tax return form has specific guidelines that must apply before they can be used by the taxpayer. For instance, a 1040EZ or short form is used by taxpayers who are not claiming any dependents. Whereas, using the tax form 1040A, the taxpayers cannot itemize their deductions. The 1040 tax form is the most common tax return form used by taxpayers. Using tax form 1040, the taxpayer can report all types of income, deductions, credits, and claim dependents. Regardless the tax form used, the tax return must be filed by April 15. If additional time is needed to prepare a return the taxpayers must file with the IRS an automatic extension tax form 4868 and have until October 15 to file their tax returns.
The information complied on the tax return form is used to inform the IRS of all income or wages received during a prior calendar year as well as any changes within the household. The tax return form is divided into sections; each section has a series of questions. For the purpose of this article, we will review tax return form 1040.
*Section one: Address and Social Security Numbers
The first section of the return is like an introduction, starting with the first and last name of the primary filer and if married the spouses name followed by the taxpayer’s mailing address, Social Security number and if married the spouse’s Social Security number. In addition, the tax payer has the option to make a contribution to a Presidential campaign fund.
*Section two: Filing Status
To indicate the filing status the taxpayer must select one of the following, single, married filing jointly, married filing separately, head of household, or qualified widower. The filing status the taxpayer selects will help determine the standard deduction. For example, single or married filing separately filing status qualifies the taxpayer to $5,700 tax deduction. Whereas married filing jointly or qualifying widower filing status qualifies the taxpayer to $11, 400 tax deduction on their return. Head of household filing status qualifies the taxpayer to $8,350 tax deduction. The deduction will be applied in section six of the return.
*Section three: Exemptions
In this section, the taxpayer is informing the IRS the number exemption they wish to claim. For instance, if the taxpayer is married and filing a joint return, they would select both the boxes indicating both the taxpayer and the spouse will be claimed on the return. And if the household had children has not been claimed on another’s return list their names, social security number and their relationship to the taxpayer. If the child being claimed, is a qualifying child for a tax credit marked the box appropriately. Once all individuals have been listed, indicate the total number of exemptions being claimed on the return. If the tax payer does not itemize their deduction, they can apply the number of exemption multiplied by $3,650 to reduce the taxable income. The exemptions will be applied in section six of the return.
*Section four: Income
The income section is as it stated; the area in which all income is reported. The first line starts with the W2 wages followed by interest and dividend income and so forth. Follow this section very carefully, each line describes which income is to be reported along with any forms that should be completed to support the amounts reported such as a schedule C for business income or schedule F for farm income. Line 22 of this section will report the total income.
*Section five: Adjusted Gross Income
This section is used to add or deduct from the income reported in the income section. Items deducted are alimony paid by the taxpayer, or IRA deductions. Certain items like penalties for early withdrawal of savings could be added to the income. Complete each line only if they apply and like the income section; some lines may require additional forms. Line 37 of this section will become the taxpayers Adjusted Gross Income or (AGI)
*Section six: Taxes and Credits
With the AGI calculated, we can apply the deductions and exemptions as reported in sections two and three. If the taxpayer claimed married filing jointly the standard deduction would be 11,400 and the exemptions would be the number reported in sections three multiplied by $3,650, let us assume the taxpayer is not itemizing and claims himself, a spouse, and one child; the total exemptions would be three multiplied by $3,650 making the amount reported $10,950. Both the standard deduction and exemptions are deducted from the AGI; consequently, giving a total taxable income. Next we apply the credits such as the child tax credits, education credits and so on. Again, some lines in this section may require additional tax forms as indicated on each line. After each line that applies has been populated the taxable income will be on line 43. Using the taxable figure in line 43 go to page 37 of publication 17 to locate the tax due. The tax due will be recorded on line 44.
*Section seven: Other Taxes
This section is used to report self unemployment taxes reported from the schedule C for business income or taxes on IRA’s. Complete each line only if they apply. Some lines in this section may require additional tax forms as indicated on each line. Total this section as instructed on the form and record the total tax due on line 60.
*Section eight: Payments
The taxes due are derived from section six through section seven by subtracting the deductions, exemptions and adding other taxes. Now the payments can be applied to the taxes due on line 60. Populate the lines that apply; if federal withholdings are reported on the taxpayers W2 or 1099, record the amounts on line 61. Other items like earn income credit or EIC and first time buyer credit are also included in this section. Complete each line that applies, add the lines in this section and subtract the total from line 60. This total will indicate if the taxpayer is due a refund or owes taxes.
The last part of the return is used to inform the IRS how the taxpayer wishes to receive a refund. If taxes are due, the taxpayer will need to submit a check payable to the IRS. To finalize the return, assuming the taxpayer files a paper return, the taxpayer and spouse must sign and date the return. Mail the signed tax return with all applicable forms used within each section of the return and attached W2 and/or 1099’s.
This is a brief summary of a tax return form 1040, there are other forms a taxpayer should know and understand. IRS publication 17 for individuals explains each step in much greater detail. Individuals wishing to file electronically should refer to publication 17 or IRS.gov. As always, it is best to consult with a professional tax preparer when preparing complicated tax return forms.