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Federal Tax Form 1040

Federal Tax Form 1040

Federal Tax Form 1040
 Every year, taxpayers file their tax returns to the IRS. In order to understand the various aspects of this form and the information you need to complete it. If you have any questions about a specific aspect of the form, it is important to contact your tax preparer or accountant, such as L. James & Associates in Denver, CO.
 The 1040 is divided into several sections, each with a purpose for reporting specific pieces of information. In addition, there are various schedules that can be attached to your 1040 to determine deductions, credits and other income that have a bearing on your tax liability. We have listed a few of those sections below:

Reporting Income

Calculating your Adjusted Gross Income (AGI) is the first page or section of the 1040. It can also be the most critical, as your tax liability is ultimately based upon this number. Thus, you are required to enter all sources of income, including wages, tips, salary, interest income, dividends, state and local tax refunds, alimony and business income, just to name a few. There are also boxes for capital gains, IRA and pension distributions, farm income and even unemployment income.
 If you have income that does not fall into one of the listed categories, the IRS has added an additional box called other, where you can put income that does not fit anywhere else. If the income is not tax exempt, then it must be reported. After these are added together, you have your total income.

Deductions

The IRS has a list of specific deductions or adjustments that can be made to reduce your AGI. Allowable adjustments include half of your self-employment tax payments, alimony payments, IRA contributions, student loan interest payments and health savings plans. These are just a few of the many deductions available. Discuss your situation with your tax professional and determine if there are more tax deductions available for your particular circumstances. Once your AGI has been determined, it is time to move into your exemptions.

Exemptions and Additional Deductions

Using your AGI, the IRS now allows you to reduce it further by means of additional deductions, either itemized or using the standard deduction. Itemized deductions can include business expenses, excess medical expenses and others. If your itemized deductions exceed your standard deduction, then you will want to use them to reduce your taxable income. However, others find their itemized deductions do not equal the standard deduction, so they choose to take that instead.
 Discuss these options with your tax preparer or tax professional to determine the best option available for your circumstances.
 Once you have determined your deductions, exemptions allow for a further reduction. You are allowed to take an exemption for yourself and each of your dependents. After completing this section, the final total is your taxable income.

Claiming Credits

Once you have completed all these sections, you will need to determine the actual tax owed based on the tax tables. Most software will complete this calculation for you. Now you and your tax preparer can determine what tax credits you might have available. In addition, you will be able to complete how much tax has already been paid via your withholdings. You may find that your tax liability is already covered and you are due a refund. If you are not due a refund, you will need to send the IRS an appropriate payment to cover the rest of the tax due.

Things to Consider

When completing your tax return, it is important to remember the following tips:

  • Keep good records throughout the year, including keeping applicable receipts and tracking expenses
  • Document major life changes, such as a birth, death or job changes
  • Major purchases, such as a home or car
  • Track mortgage and student loan interest paid
  • Gather all W-2s and 1099 forms
  • Make an appointment with your tax preparer or accountant

It is important to remember that unless you qualify to use a 1040EZ, you should consider a tax preparer that can determine what deductions you qualify for and how to best take advantage of these to reduce your tax liability. You can also work with your tax preparer to determine what information you should be tracking throughout the year to document additional deductions or credits.
 Call or click on the link below to contact a tax professional at L. James & Associates in Denver, CO, who can assist you in preparing your tax returns accurately.

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