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Form 1040: Essentials to Know

Form 1040: Essentials to Know

When the end of the tax year rolls around, and taxpayers in the U.S start to think of filing their tax returns, the form 1040 is the go-to form. There are some variations to it, however. The form has four main segments. Under these, you outline the details of your income, list out your tax deductibles to get a total of the tax you’re to pay, and list out any refunds you are eligible for or are expecting to receive. Depending on your income bracket, you might need additional forms, also known as schedules, to go with the 1040 form for a more apt filing of your tax returns.


Variations to the 1040 Form

There are currently four variations of this form (excluding the forms 1040A and 1040EZ, which are now obsolete.) These are:

  1. Form 1040: Most taxpayers file for their tax returns using this form.

  2. Form 1040-NR: Non-US citizens without permanent resident cards are the ones who make use of this form. This form is lengthy, unlike the other variations of the 1040 form.

  3. Form 1040-SR: These are for older taxpayers, from sixty-five and upwards. It is pretty similar to the standard 1040 form. It’s just that the print is more significant, and there is a section for calculating the individual's standard deductions.

  4. Form 1040-X: These forms are provided for tax amendments. Basically, for people who want to make corrections or changes to their tax returns.


Why is the 1040 form important?

The IRS 1040 form is essential because it is what taxpayers use to calculate the total of their taxable income, taxes they’re to pay, and tax deductibles and refunds. This is done by first determining their Adjusted Gross Income (AGI). The AGI is calculated by stating the total of the taxpayer's gross income and then laying claims to any allocated or allowed (above-the-line) deductions. Knowing one's AGI is important because certain tax deductions depend on it. The AGI is entered on line 11 of the 2021 1040 form. The AGI can be further reduced by using either standard deductions or by drawing up a list of the individual’s tax deductions.

 

Schedules Used With the 1040 Form

Schedule 1: This form is often used to report additional income sources or make an income adjustment. This form finds purpose in cases such as education costs, tuition, alimony, compensation for unemployment, profits or loss from real estate, especially business properties, and contributions towards health care savings.

Schedule2: If an individual incurs additional taxes, this form is used in filing them. It is divided into two sections. The first section deals with repaying excess tax credits obtained from purchasing health insurance packages and making reports on alternative minimum tax. While the second section deals with Medicare tax and unreported social security, self-employment tax. Household employment taxes, repayment of first-time homebuyer credit, section 965 net tax liability for foreign corporations, and additional tax on IRAs or other tax-favored accounts

Schedule 3: This is used to document extra payments and credits. It is divided into two sections: One part is for refundable credits, while the other is for non-refundable credits. These credits may include overpayment of taxes in the previous filing, child care or dependent(s)' expenses, previous social security tax paid in excess, and residential energy credits.

Schedule A: This is used for filling in all tax deductibles. Deductions include local and state taxes, interest on the mortgage, donations to charity, loss through theft or tragedy, and dental and medical care expenses.

Schedule B: This form is used to document dividend income and interest that exceed $1,500. If a taxpayer’s dividend income or interest falls below this amount, then the standard 1040 form will do.

Schedule C: Business owners use this form to report profits or losses experienced by their businesses. Freelancers, sole proprietors, independent contractors, or Limited Liability Companies (LLCs) owned by single individuals often make use of this form. 

These are but a few of the schedules used with the 1040 form. Thinking of filing for your tax return? Then consider familiarizing yourself with the 1040 form, its variations, and the plans used with it to enable you to have a smooth tax filing process.


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