If you’re a wage earning, tax paying American resident, chances are that you’re already familiar with Form 1040, or one of its variations (Form 1040A, 1040EZ). Form 1040 is the long form for filing a personal federal income tax return. Any person who lives full time in the United States may use the 1040 to file their personal income tax return. Other individuals with simpler tax situations can often use the short 1040A or 1040EZ forms.
Form 1040 has 12 attachments, called “schedules.” A detailed look at what goes into each schedule would take quite a while. (Expect these explained in further articles.) However, here is a brief summary of each schedule. If you’re reading this around tax time and you have any questions, do the safe thing and consult a professional.
- Schedule A – Itemizes deductions against your income. Many filers take a standard deduction, rather than calculating their itemized deductions, for two reasons. One, it’s quicker and easier. Two, many filers’ itemized deductions are less than the standard deduction (anywhere from $5,150 to $14,000 this year). What can you take as a deduction? That’s a great question, but also an expansive one. Common deductions include mortgage interest, state and local taxes paid, and healthcare costs exceeding a certain percentage of income.
- Schedule B – Notes interest and dividend income. This schedule is only required if interest and dividend income in a year exceed $1,500.
- Schedule C – Lists income gathered from self-employment. There’s a shorter version of this schedule for filers who have very straightforward means of self-employment income.
- Schedule D – Lists a filer’s capitol gains, and calculates the tax paid on them using reduced tax rates for capital gains.
- Schedule E – Shows where a filer reports any income from rental property, royalties, trusts, estates, partnerships, or S-corps.
- Schedule EIC – Is used to qualify a filer for the Earned Income Credit, a credit for working filers with low wages.
- Schedule F – Lists any income related to farming.
- Schedule H – Is used to report certain taxes owed if a filer has hired household help within the tax year.
- Schedule J – Is used when averaging income over several years. Farmers and fisherman typically use this form to account for large shifts in their income from year to year.
- Schedule M – Is used in tax years 2009 and 2010 to claim a $400 “making work pay” credit. The credit is a 6.2% earned income credit, up to $400.
- Schedule R – Is used to calculate a credit for the elderly or disabled.
- Schedule SE – Is used to calculate the self-employment tax owed on income from self-employment, reported on Schedule C or Schedule F.
Needless to say, no two 1040 forms are the same. Every taxpayer has different wages, deductions, and credits. As such, no two filers will need the same documents to include with their Form 1040. You’ll need documents to certify your wages and deductions. Most any wage earning filer will require and W-2 forms from the year. Any homeowner will need documentation of mortgage interest. The collection of paper required naturally varies from filer to filer.
If you’re in a simple tax situation, you’re probably best served with a quick and easy online filing service. But if you read the above and find yourself required to fill out several of the above schedules, it might be best to consult a professional. A good accountant or tax attorney can make sure you don’t find yourself paying a costly penalty or back taxes. More, they can help you minimize your tax liability. That means less money for Uncle Sam and more in your pocket to save, invest, or spend.