1040 is an IRS (Internal Revenue Service) form. The IRS sends it to individual taxpayers to file their annual income tax returns.
The form consists of sections that request individuals to disclose their taxable income gained during a specific year. The form is used by the IRS to calculate whether the taxpayer owes taxes to the state or the state owes a refund to the taxpayer.
Keep reading the article to learn more about 1040. In this guide, you will learn how to fill out the form what documents and details you need to fill out 1040 and return to the IRS properly.
1040 Form: Individual Tax Return
Taxpayers should complete and submit the 1040 Form to the IRS by April 15. Every individual earning income exceeding specific thresholds must disclose their income tax return to the IRS. Businesses use different forms to inform their taxable income.
The Tax Cuts and Jobs Act (TCJA) that was accepted in 2018 significantly reduced the number of 1040s. Moreover, today, the 1040s usually consist of just two pages. Thanks to this change, it has become easier to file income tax returns. Today, it’s also possible to complete and send the form online.
Form 1040 consists of sections that ask taxpayers about their name, address, Social Security number, number of dependent individuals. In some cases, 1040 requests information about one’s spouses.
1040 requests data about the full-year health coverage and whether the individual wants to contribute to the presidential campaign funds in the amount of $3. Taxpayers can visit the official IRS website to download and print out 1040 forms and schedules.
The income section of 1040 requests data of filer’s wages, salary, capital gains, pensions, taxable interest, any Social Security benefits, any other type of income. In the section Other types of income, a filer has to disclose such gains as canceled debts even if they are lower than $600.
1040 enables taxpayers to claim higher standard deductions accepted with TCJA. Taxpayers should file their 1040s in 2022 for the year 2021.
Who Must File a 1040 Form?
You have to file 1040 if any of these situations are applicable to you:
- Taxable income is $100.000 or more.
- Self-employed income is $400 or more during a specific year.
- In case there are any possible itemized deductions, for example, mortgage, interest, charity, etc.
- It’s possible to claim some income adjustments such as educator, tuition, moving expense, or any health savings accounts.
- If a financial institution forgives a debt, an individual should add this information to the Other income section.
- There is income gained from withholding paychecks.
- There are over-payments or estimated tax payments that can be claimed during a specific year.
- A taxpayer has income from having a share in a partnership or S corporation, owns a trust, rental, farm.
- An individual receives income from selling property, mutual funds, bonds, stocks, etc.
- The taxpayer receives any available tax treaty benefits, earns foreign wages, or pays foreign taxes.
- If a W2 Form shows that a taxpayer has uncollected tax from tips on life insurance. Or when a W2 form shows a code Z which means an individual has income gained from the 409-A non-qualified deferred compensation package.
- An employer gives an advanced payment for EITC.
- An expatriated corporation handed excise tax on insider stock compensation. This information should be listed in the Other income section.
- A taxpayer is a debtor, according to the Chapter 11 bankruptcy case.
- An individual owes other taxes to the state, such as recapture or household employment tax, alternative minimum tax, etc.
It’s easy to file 1040, but if the taxpayer is doing taxes for the first time, they may request the help of a professional accountant.
Note, today, the majority of taxpayers choose to file forms online for free. Meaning the IRS is no longer sends automatically 1040 to taxpayers. In some cases, filers receive 1040, but it’s the responsibility of a taxpayer to make sure they file their taxes.
Types of 1040 Form
The IRS identifies four main 1040s:
- 1040. It’s a standard form that taxpayers use to disclose their gains and losses. The form has only two pages.
- 1040-SR. Individuals at age 65 or older can use the SR variant to file their taxes. The form is similar to the standard variant, but it has more pages and charts. Additional materials are supposed to help senior taxpayers calculate their taxable income.
- 1040-NR. A non-resident taxpayer with a US-based income must file taxes according to the NR variant.
- 1040X. A taxpayer has to make adjustments according to 1040X if the IRS has sent a notice about the previously filed form.
Two forms are missing after 2018, so now it’s easier to figure out which category of taxpayers you belong to file taxes.
The Goal of 1040
Taxpayers receive 1040 to determine their taxable income and then to calculate the amount of taxes they owe to the state. The goal of the form is to collect information about the income of taxpayers.
The first thing to do to fill the form is to calculate your AGI (Adjusted Gross Income) by reporting income from all sources. The next thing to do is to claim all allowable adjustments (or, in other words, above-the-line deductions).
AGI is crucial to many deduction limitations, so it’s important to calculate it right. A taxpayer should include their AGI on line 11 of Form 1040. Taxpayers can use a standard deduction for a specific year or use itemized deductions to reduce AGI. For this reason, taxpayers use Schedule A.
It takes more time to calculate itemized deductions expenses, but in some cases, it’s worth it since you can reduce AGI even more.
Itemized deductions enable individuals to get a refund on:
- Any charitable contributions.
- Mortgage interest.
- Excess medical expenses.
- Sales taxes, or state and local income taxes.
If the standard deduction is equal to or lower than itemized deductions, it’s wiser to choose the standard deduction option. That way, the income is usually lower. So, 1040’s goal is mainly to record taxpayers’ income, but it also enables AGI reduction.
Types of Schedules Used with 1040
After changes accepted in 2018, the IRS now requests fewer schedules. New schedules contain the following:
Schedule 1
This schedule is used to disclose information about profit from the business, partnerships, federal tax refunds, unemployment compensation, etc. The schedule is also used to report any adjustments from income, for example, deductible self-employment tax, HSA deductions, contributions to plans for retirement, etc.
Schedule 2
This schedule consists of two parts. Taxpayers use the first part to report any other taxes, for example, AMT (Alternative Minimum Tax) or excess credit gained through premium assistance according to ACA (Affordable Care Act). The second part requires disclosing Self-Employment Tax and any other taxes that apply to special situations.
Schedule 3
This schedule also consists of two parts. Part I requires filing credits such as Retirement Savings, Child Care, Foreign Tax, Residential Energy, and education credits. The state won’t refund these credits, so it’s important to file them properly not to overpay.
Part II requests estimated tax payments, payments made with an extension, and some refundable credits not listed in Part I.
