Tax preparation isn’t something most people get excited about, particularly because of the complexity of filing returns. As of 2017, the Internal Revenue Service has over 900 forms available on its website. Knowing more about the commonly used federal income tax forms makes filing less intimidating and helps you take advantage of all the deductions you’re entitled to claim.
Here’s what you need to know about the most common IRS tax forms and filing your taxes.
Tax Form 1040
The 1040 tax form is the long form for filing individual income tax returns. Anyone can opt to use this longer form, but if any of the following apply, you must use Form 1040:
- You have $100,000 or more of taxable income.
- Your income includes business or farm income; self-employment income; unreported tips; dividends on insurance policies that exceed the total of all net premiums you paid for the contract; partner or shareholder income from an S corporation; or income received as the beneficiary of an estate or trust.
- You itemize your deductions or claim certain tax credits or adjustments to income.
- You owe household employment taxes.
The 1040EZ form is the shortest individual income tax return form. To take this short-cut, you must meet these requirements:
- You must be filing as single or married filing jointly.
- You don’t claim any dependents.
- You aren’t claiming any deductions or credits other than the earned-income credit.
- You — and your spouse, if married — are under 65 on the first day of the following tax year, and you aren’t blind at the end of the tax year for which you’re filing.
- Your income consisted of only wages; salaries; tips — all of which are included in boxes 5 and 7 of your W-2; taxable scholarship and fellowship grants; unemployment; Alaska Permanent Fund payments; or $1,500 or less of taxable interest.
- You and your spouse — or anyone you enrolled in coverage who isn’t claimed by someone else as a dependent — didn’t receive advance payments of the premium tax credit.
Form 1040A is the mid-length individual income tax return form. If you can’t use Form 1040EZ, you might be able to use 1040A instead of Form 1040 if:
- Your income includes only wages; salaries; tips; interest; ordinary dividends; capital gain distributions; taxable scholarships and fellowship grants; pensions; annuities; IRAs; unemployment compensation; Alaska Permanent Fund dividends; or taxable Social Security or railroad retirement benefits, and the total is less than $100,000.
- Your only deductions are IRA contributions, student loan interest, educator expenses, or education tuition and fees.
- Your tax credits only include the credit for child or dependent care expenses; the credit for the elderly or the disabled; education credits; the retirement savings contributions credit; the child tax credit; the additional child tax credit; the earned-income credit; or the premium tax credit.
Your employer uses Form W-2 to report the amount of your income to you and to the IRS if you have earned $600 or more for the year, or if payroll taxes were withheld on any income amount, so you need it to file your taxes. Your W-2 also shows the amount of taxes, including federal, state, and local income taxes, and Social Security and Medicare taxes, that were withheld, along with contributions to your 401k, health savings account and medical savings account.
Employers must withhold income tax from employees’ paychecks. Form W-4 tells your employer how to figure out how much to withhold based on your filing status — single or joint — and the number of allowances you claim. Each allowance decreases the amount of your pay that is subject to income tax withholding. Be truthful when filling out your W-4 — the IRS can impose a $500 penalty for a false form.
Find Out: How to Fill Out a W-4
Whereas Form W-4 calculates withholding from your paychecks, Form W-4P tells your financial institution how much to withhold from your annuity or pension. If you have multiple pensions or annuities, you must fill out a separate form for each one. Allocating all of your allowances to the highest-paying pension and reporting zero allowances on your remaining W-4Ps helps to ensure accurate withholding.
If you work as an independent contractor, you’ll receive a Form 1099-MISC at the end of the year to report your income to the IRS. You’ll receive a Form 1099-MISC if you earn $10 or more in royalties or broker payments instead of dividends or tax-exempt interest, or if you have $600 or more in various types of income, including rents, prizes, crop insurance proceeds, and fishing boat proceeds.
If your Form 1099-MISC is incorrect, contact the person or entity who issued it. If you cannot get them to correct it, report the correct amount of income on your tax return and attach an explanation to your return.
Form 1098 must be filed when a recipient receives $600 or more in mortgage interest. For example, if you pay $1,500 in mortgage interest to your bank during the year, your bank will file Form 1098 with the IRS and send a copy to you. That way, you can verify the amount of mortgage interest you deduct on your tax return. The Form 1098 also shows you how much you paid in mortgage insurance premiums and points.
If you have employees, you are required to withhold income and payroll taxes from their paychecks. You’re also required to file quarterly 941 forms to update the IRS on the wages you’ve paid; tips employees reported to you; federal income taxes you’ve withheld from employees’ paychecks; all Social Security and Medicare taxes withheld; adjustments to Social Security and Medicare taxes during the quarter; and qualified small business payroll tax credits for increasing research activities.
If you purchase your health insurance through the Health Insurance Marketplace, also known as the Exchange, you might qualify for the premium tax credit to help you pay your premiums. To claim the credit, you must file Form 8962. In addition, if you received an advance of your premium tax credit, you must file Form 8962 to determine how much more you still are owed or need to repay. The amount of your premium tax credit is based on your family size and your income.