What is the 1040 Form?_
A 1040 Form is a form that many taxpayers in the United States use to file their annual federal tax returns with the Internal Revenue Service.
The IRS Form 1040 is what most people use to file their income tax returns. In this form, taxpayers report to the Internal Revenue Service (IRS) their income for the tax year, as well as any deductions they’re taking to lower their taxable income. First, the taxpayer reports income they earned from all sources. They can claim appropriate tax deductions to find their adjusted gross income. Finally, individuals indicate the deductions and credits they are claiming for the year. From this information, they can determine their total taxable income for the year. Based on their taxable income and the amount they’ve already paid in income taxes, they can figure out if they will get a refund from the federal government or if they will owe more money in taxes.
Sarah receives her W-2 form (a form that summarizes her earnings for the year) from her employer and is ready to file her individual annual tax return. Sarah goes online and uses the IRS Form 1040. She enters the amount of income she earned throughout the year. Sarah is also eligible for a few deductions due to the contributions she made to her retirement account and the interest she paid on her student loans. Thanks to her deductions, Sarah’s 1040 indicates that she’s overpaid in taxes for the year and will get a refund from the IRS.
The 1040 form is like a final exam…
When you take your finals in college, it’s basically a summary of everything you’ve learned throughout the year. The results of the final exam will determine your grade for the class. Likewise, your 1040 is a summary of all the money you earned that year. The results of your 1040 form determine whether or not you get a refund or owe a big check to the federal government.
The goal of the 1040 form is to break down how much money you’ve made during the tax year, deductions you can take to lower your taxable income, and what your ultimate tax liability is for the year. Ultimately this information will determine whether you’ll get a tax refund, or whether you’ll owe the Internal Revenue Service (IRS) money at the end of the year.
Most people pay income taxes throughout the year, deducted from their paychecks. The IRS has a pay-as-you-earn policy, meaning they expect you to be paying taxes on your income as you earn it. That’s why your employer takes money out of your paycheck for income taxes rather than the IRS allowing you to pay a lump-sum bill at the end of the year.
The purpose of the 1040 form is to report what you earned throughout the year and to figure out whether you’ve paid enough in taxes. The amount you pay in taxes on your income over the course of the year is a result of your W-4 form — The W-4 is a form you fill out when you start a new job to indicate to your employer how much they should withhold in taxes from each paycheck.
Then after the year ends, you’ll get a W-2 form from your employer. This form shows how much you earned that year, and how much you paid in taxes. You use the information on this form to file your taxes. You usually have until April 15 to submit your 1040 form for the previous year’s income.
Let’s break down the information you’ll need to file your taxes.
Personal information: On the 1040 form, you’ll share all of your personal information, including your name, address, and social security number. You’ll also enter your filing status (single, married filing jointly, married filing separately, or head of household).
Dependent information: You’ll add the first and last name and social security number of any dependents, as well as their relationship to you.
Wages, salaries, and tips: You’ll add the wages, salaries, and tips you earned during the year. This information appears on your W-2 form, and you’ll attach a copy of your W-2.
Other income: You also have to share any other income you brought in during the year, including interest, dividends, retirement income (such as from an individual retirement account or Social Security benefits), and capital gains.
Tax credits or deductions: You’ll indicate if you’re claiming the standard deduction (which is $12,400 for a single person and $24,800 for a couple as of 2020). If you’re itemizing deductions instead, you’ll add your deductions. You’ll also indicate the credits you’re claiming. Credits include the Earned Income Tax Credit (or EITC, which provides a tax credit to those working but earning under a certain level of income) and the child tax credit.
The amount you owe or the IRS owes to you: Once you’ve added all your other information, you’ll be able to calculate whether you get a tax refund, or whether you still owe the IRS some money.
If you’re worried about whether you’ll end up owing the IRS money when you file your taxes, there’s some good news. In 2019, well over half of those who filed taxes ended up getting a refund from the federal government.
If you are eligible for a refund, you can receive it either by bank direct deposit or through a check you receive in the mail. For those who do end up owing money to the government, you can pay online using direct pay, which is when the money comes directly out of your checking or savings account. You can also pay by credit or debit card — though you’ll pay an extra fee to do so. You can even pay by old-fashioned check made payable to the U.S. Treasury.
The IRS allows people who owe income taxes to set up payment plans to help them spread out the amount they owe. You can set up an installment agreement if you are an individual who owes $50,000 or less in taxes or a business that owes less than $25,000 in taxes.
According to the Internal Revenue Service (IRS), more than 90% of people e-file their annual tax returns. Many of those people either use commercial tax software or hire a tax preparer to file their taxes for them.
For taxpayers using software or a tax preparer, you won’t have to hunt down a copy of the 1040 form. Commercial tax software usually has you answer questions about your finances, and then automatically enters that information into a 1040 form, which you can then file electronically and print a copy off for your personal records.
If you’re one of the people who hire a tax preparer, you’re also in luck. That tax preparer should find and fill out the 1040 form on your behalf, and then electronically file it with the IRS.
For the taxpayers who fill the form out themselves, it’s not hard to find. The IRS houses all tax forms, including the Form 1040, on their website. You can fill it out and file it electronically, often for free through IRS Free File, or you can mail the form.
The IRS Form 1040 is a fairly basic form. It’s less than two full pages long, and has space to enter most of the information you’ll have to share with the Internal Revenue Service (IRS). For some people, though, the 1040 form leaves off some critical information the IRS wants. For that reason, they have different schedule forms that you can file in addition to your 1040 form.
Schedule 1: On this form, you enter any additional income or income adjustments you have. Extra income might come from business, rental, alimony, or unemployment income. Income adjustments include deductions for health savings accounts (HSAs), retirement contributions, and student loan interest payments.
Schedule 2: This form allows you to enter any additional taxes you owe, such as self-employment taxes, household employment taxes, taxes on retirement plans and other accounts, or the alternative minimum tax.
Schedule 3: On this form, you’ll claim any credits that aren’t on the standard 1040. These credits might include education, business, or foreign tax credits.
Schedule A: This form is for anyone itemizing their deductions (this is when you opt-out of taking the standard deduction to list the individual deductions you’re claiming)
These are the most common schedule forms you might need. There are many others you might fill out for a variety of reasons. The other forms address financial topics such as business profits and losses, capital gains, and income for farmers and fishermen.
The different forms might seem confusing. If you’re using tax software or a tax preparer to file your taxes, you won’t have to worry about which forms you should and shouldn’t file. You’ll simply provide the necessary information, and they’ll take it from there.
In past years, there have been several different tax forms available for people to use to file their taxes. The forms differed based on how complicated your tax situation was. The forms ran the gamut from the simplest of forms, the 1040-EZ, to the standard 1040, which was the most complicated.
The IRS Form 1040 was the standard form the IRS provided for people to file their annual tax returns. It was the most common form — IRS data shows that over half of taxpayers filed with the standard 1040.
As of 2019, the Internal Revenue Service (IRS) no longer uses the 1040-EZ or the 1040-A form (which was a middle-ground between the 1040-EZ and 1040). Instead, everyone will file with either the 1040 form or the 1040-SR form.
The most basic tax form used to be the 1040-EZ. This form was for taxpayers whose tax situation was relatively simple. There were several requirements one must have met to use this form:
You had less than $100,000 in taxable income and less than $1,500 in interest income
You were filing single or married filing jointly, and you had no dependents
You and your spouse were under the age of 65
You weren’t itemizing deductions
This form was so basic that most people weren’t able to use it. Data from the IRS shows that only about 16% of taxpayers used the 1040-EZ form. The form had many limitations that prevented taxpayers from using it.
First, the income component was a limitation for many people. A married couple who each earned more than the national average salary of $48,672 probably would not have been able to use this form. Another major limitation of the form was that it was not available to those with children.
Finally, only those with a straightforward tax situation could use the form. The only tax credit one could claim on the 1040-EZ form was the Earned Income Tax Credit. You also couldn’t use the form for any deductions, such as those for contributions to an individual retirement account (IRA) or payments on student loan interest.
The 1040-A form was a bit of a middle ground between the standard 1040 form and the 1040-EZ. It was a form for use by those whose tax situation was a little too complicated for the 1040-EZ, but a little too simple for the 1040. The 1040-A form was for people who filled the following requirements:
You had less than $100,000 in taxable income
You were filing single, married filing jointly, married filing separately, widow, widower, or head of household
You weren’t itemizing deductions
The form 1040-A did provide a little more flexibility than the EZ form. You could use the 1040-A if you had children and were claiming credits for child and dependent care expenses or the child tax credit. You could also use the form if you were deducting contributions to an IRA or payments you made to student loan interest.
The IRS no longer uses the 1040-EZ or 1040-A forms — They’ve just wrapped all of those into the standard 1040 form. But there is one alternative tax form available for use: the Form 1040-SR.
The 1040-SR is a tax form people age 65 or older can use to file their taxes. This form allows seniors to either itemize their deductions or take the standard deduction. There’s no income cap to use this form. The primary differences between this form and the standard 1040 form are in the appearance.
The 1040-SR has a larger font and different colors that make it easier to read. The IRS has also added a section to this form that shows the standard deduction options for seniors since those over the age of 65 have a higher standard deduction than everyone else.
What is a Cash Flow Statement?
A cash flow statement is a document that shows a company’s cash inflows and outflows for a period of time.
What is Term Life vs. Whole Life Insurance?
Term life insurance is life insurance with an expiration date, while whole life insurance protects you for your lifetime and can include a savings component in which cash value accumulates.
What is Revenue?
Revenue is the total income generated by a business through sales of products or services. It is also referred to as sales and is a measure of a company’s health.
What is Retirement Planning?
Retirement planning is the process of deciding on your goals for retirement and coming up with a course of action that will help you reach those goals — typically involving saving, investing, and providing for the possibility of needing long-term care.
What is Expropriation?
Expropriation is a process in which the government takes someone’s private property for public use if it’s in the public’s best interest.