IRS Form 1040: Understanding U.S Individual Income Tax Return

IRS Form 1040: Understanding U.S Individual Income Tax Return

The IRS Form 1040 is the form used by Individuals to file a tax return and is the most commonly used form to file income.  In this article, we will go through the form so you will know more about when you need to file, if you need to file and what you should be filing as well.  So, let’s get stared.

What is IRS Form 1040?

The IRS Form 1040 is used by U.S. taxpayers to file an annual income tax return.  This form is submitted to the IRS for processing to determine what taxes are owed and if you overpaid your taxes or if you need to pay.  In short, will you get a refund?

Who Should File Form 1040?

Typically, Form 1040 needs to be filed with the IRS no later than April 15 (unless it falls on a weekend), unless you file an extension. If you do file an extension by April 15, your return will be due six months later on October 15. Any person that earned an income during the prior tax year must file an income tax return on Form 1040, with some exceptions.

In addition, you may have to file Form 1040 if you received these types of income:

• Self-employment income
• Income you received from your role in a partnership, as a shareholder in an S corporation, or as a beneficiary of an estate or trust
• Insurance policy dividends (that are higher than your premiums)
• Interest received or paid on securities
• Distributions from a foreign trust

You must also have to file Form 1040 if one of the following apply:

• You owe any special taxes, such as
  • Alternative minimum tax.
  • Additional tax on a qualified plan, including an IRA
  • Household employment taxes
  • Social Security and Medicare tax on tips you didn’t report to your employer

You may want to file Form 1040 if one of the following apply as you could be owed a refund:

• Earned income credit
• Additional child tax credit
• American opportunity credit
• Credit for federal tax on fuels
• Premium tax credit
• Health coverage tax credit

If you are still uncertain if you need to file a Form 1040, it’s best to contact a tax professional for guidance, such as Legacy Tax & Resolution Services.

Understanding IRS Form 1040

Many times the Form 1040 does not get filed timely as many taxpayers find the form is too confusing or there is too much information that needs to be provided.  Yes, there is a lot of information contained on this form, but not all of it will apply to you.  In addition, it’s best to have your information and documents ready before completing the return.  Some of these include:

• Your social security number along with your spouse and any dependents
• Birth dates for you, your spouse, and dependents
• Income documents, such as W-2 or 1099
• Other income documents, such as taxable interest 1098-INT or ordinary dividends 1099-DIV, Retirement income 1099-R
• Documentation to show you are eligible for an itemized deduction
• Documentation to show are you are eligible for the child tax credit
• Previous years tax return

Form 1040 Deductions

Form 1040 has a standard deduction amount and an itemized deduction amount.  These deductions essentially lower your taxable income, and lower taxable income means paying less in taxes.  Depending on the amounts you claim, determines if you should take the standard deduction amount or the itemized deduction amount.  Keep in mind, you will need proof if you are itemizing as this is usually the red flag that causes audits.  When in doubt, contact a tax professional who can help navigate the deductions to maximize your tax savings.

The standard deduction amounts vary tax year by tax year, so it’s best to check the IRS website for the current deduction amount for your tax filing status.

If you are itemizing, your deduction categories include:

• Mortgage expense
• State and local taxes
• Gifts to charity
• Medical and dental expenses

Which Form 1040 Schedules Should I Use?

If you are claiming certain incomes or have certain deductions, you may need to attach different schedules to your return in order to report these items.

Schedule 1

If you had any of the following during the tax year, file Schedule 1:

• Alimony income or payments
• Business income – Also attach Schedule C
• Rental income or income from partnerships, S Corps, or trusts – Also attach Schedule E
• Farming income
• Unemployment income
• Deductible health savings account
• Deductible moving expenses for military
• Deductible student loan interest or tuition

Schedule 2

If you owe any of the following during the tax year, file Schedule 2:

• Alternative minimum tax
• Excess advance premium tax credit repayment
• Self-employment tax
• Taxes on IRAs, retirement plans, and other taxable accounts
• Household employment taxes
• Repayment of the first-time homebuyer credit

Schedule 3

If you are planning to claim any of the following during the tax year, file Schedule 3:

• Foreign tax credit
• Credit for child and dependent care expenses
• Education credits
• Retirement savings contributions credit
• Residential energy credit
• Excess social security tax withheld

Should I Use Form 1040-SR?

For those taxpayers who are 65 and older during the tax year, you could file Form 1040-SR instead of Form 1040. This tax form has been reformatted with larger print to assist older taxpayers in completing the form with ease.

Contact a Tax Professional for Assistance

Agreed, IRS Form 1040 can be very confusing.  On top of that, you will want to make sure your return matches fairly closely year after year as it could raise some red flags if you claim too much in charitable contributions, but your income did not increase.  Or, if you neglect to include income received, it could result in a hefty penalty.

Tax professionals are trained in taxes and there to help taxpayer as they understand tax law is confusing and every changing.  The professionals at Legacy Tax & Resolution Services, LLC are experienced in understand the tax laws and new laws that come along each tax year.  Our firm has been around for over 25 years and our great achievement is assisting taxpayers in assuring they pay only the tax that is absolutely necessary!