If you’re preparing your federal taxes yourself, you’ve no doubt encountered the myriad of tax forms that are out there. From form 1040EZ to 706-A, it is a confusing mix of numbers and letter.
But those numbers and letters have a specific purpose depending on your situation and needs. If you are a single adult, married, have children, own a business, recently purchased a house, have a limited income or gotten rich on several investments, there is a form that is made for your situation.
To determine which federal tax form you need, assess your situation. The most basic tax form is the 1040EZ, a single page form that is available to taxpayers whose total income in under $100,000 and their interest income is under $1,500. In addition, filers of the 1040EZ form must be under 65, have income only from wages, interest or unemployment compensation, do not have any adjustments to their income and are single or married and filing jointly.
If you have adjustments to your income, you may want to use the next level of form, the 1040A, most often referred to as the short form. Users of the 1040A can adjust their income for penalties for early withdrawal of their savings, IRA contributions, interest on student loans and jury duty pay submitted through your employer. Users of 1040A can also claim tax credits for child and dependant care, elderly and disabled care, education, retirement savings and earned income tax credit.
The 1040A form cannot be used for itemized deductions, however, so those who wish to itemize their deductions can use form 1040. Any taxpayer can use the 1040 form, though some may have to consult a tax professional because of its longer format. Users of 1040 are required to have an income of $100,000 or more and plan on itemizing deductions such as interest on their mortgage or charitable donations. Also, the 1040 form is used by those with income from a business, rental property, farm, trust or partnership; income from foreign wages, the selling of property, bonds or mutual funds, or need to claim adjustments to their income for moving expenses, health savings accounts, tuition and fees.
If you file your taxes using special tax preparation software, you are required to use federal tax form 1040PC. The form is created by the software and comprised of symbols and type that computers at the IRS will interpret and translate into your tax return.
If you have made an error on forms 1040EZ, 1040A or 1040, you may file form 1040X, the Amended U.S. Individual Tax Return form, to make corrections. In the case of a tax refund, form 1040X must be filled out within three years of the original filing or within two years of the date the original tax was paid. If the correction is based on a worthless security or a bad debt, form 1040X must be filled out within seven years of the filing of the original tax form.
Homeowners may want to make themselves familiar with form 1098, the Mortgage Interest Statement, which is used to report interest the taxpayer has paid on their mortgage. This interest is usually tax deductible.
Form 1099-R is used by taxpayers to report redemptions from qualified retirement accounts. This form is sent to the taxpayer by the financial institution with which they have made investments and must be mailed by February 15 of the year that follows the year in which the retirement account was redeemed. On these forms, an amount in Box 5 may indicate that the account in question has funds available that has been previously taxed before being deposited into the account.
Finally, form 1099 is submitted by taxpayers to report income that comes from sources other than wages, salaries and tips. This form is sometimes referred to as an “information return” and must be submitted by the taxpayer for each transaction in three copies for the payer, payee and IRS. An example of form 1099 use is payment to independent contractors, and a business must submit a form 1099 for each contractor who is paid $600 or more for the past year. Because of this requirement, many businesses end up submitting hundreds and thousands of for 1099 each year, so the IRS requires those who have to submit 250 or more 1099s to do so electronically.
There are hundreds of other IRS federal tax forms that are designed to meet the unique needs of students, business owners, homeowners, retirees and independent workers, among others. Take the time to consult with a tax professional to find out which forms are suited to your needs.