How to file your income tax return
There are a number of different types of income tax returns. You must use the tax form that corresponds with your particular situation and allows you to claim the income, deductions, credits, etc. that apply to you. The most common types of income tax returns include the following:
- Form 1040 (U.S. Individual Income Tax Return) (a.k.a. “the long form)
- Form 1040A (U.S. Individual Income Tax Return) (a.k.a. “the short form)
- Form 1040EZ (Income Tax Return for Single and Joint Filers With No Dependents)
- Form 1040NR (U.S. Nonresident Alien Income Tax Return)
- Form 1040NR-EZ (U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents)
IRS Tax Form 1040 (U.S. Individual Income Tax Return)
Form 1040 is the standard federal income tax form used to report an individual’s income. It is also known as “the long form” because it is more extensive than the shorter 1040A and 1040EZ Tax Forms. Also unlike the other tax forms, IRS Form 1040 allows taxpayers to claim numerous expenses and tax credits, itemize deductions, and adjust income. While the 1040 may take longer to complete, it benefits taxpayers by giving them more opportunities to lower their tax bills. There are several tax forms to choose from when filing your federal income taxes. A safe bet is to use IRS Form 1040 if you are unsure whether or not you qualify for the 1040A or 1040EZ.
How to Obtain Form 1040
There are many different ways to obtain Tax Form 1040. The fastest and most convenient option is to download the tax form on your computer. Most post offices and local libraries carry forms around tax time, and forms can also be picked up from a tax center or an IRS office. In addition, you may request a tax form to be sent to you by U.S. Mail. Deadline for Form 1040 IRS Tax Form 1040, with payment, is due by April 15th (unless that date falls on a weekend, which moves the filing deadline to the next business day).
A six-month tax extension may be granted (with IRS Tax Form 4868) for late filing, but payments must still be made by the original due date (typically April 15th). FILLING OUT FORM 1040 Before you begin filing your 1040 tax form, make sure you have the following information ready:
- Proof of identification
- Filing status and residency status
- Social Security Numbers for you, your spouse, and any dependents
- Dates of birth for you, your spouse, and any dependents
- A copy of your past tax return
- Statements of wages earned (e.g., W-2, W-2G, 1099-R, etc.)
- Statements of interest/dividends from banks, brokerages, etc.
- Proof of any tax credits, tax deductions, or tax exclusions
- Your bank account number and routing number (for Direct Deposit)
Here are line-by-line instructions to walk you through the process of filling out the different sections of the 1040 form:
Name, Address, and SSN Provide your name, address, and Social Security Number (SSN). Note that a missing or incorrect SSN can result in an increase of tax, a delayed tax refund, and a reduced tax refund. If you are a resident or nonresident alien, provide your Individual Taxpayer Identification Number (ITIN) wherever your SSN is requested on the tax return.
Filing Status The federal tax filing statuses include: single, married filing jointly, married filing separately, head of household, and qualifying widow(er) with dependent child. You may qualify for more than one filing status, in which case you will have to make a choice. In that situation, you should choose the filing status that will result in the lowest tax.
Exemptions The IRS allows taxpayers to claim personal exemptions for themselves and their dependents. A personal exemption is similar to a tax deduction because it reduces your taxable income. (Note that your personal exemption amount may be less if your income exceeds a certain amount.) Your personal exemption information must be 100% accurate on your tax return because it largely impacts how much federal income tax you owe. In order to claim someone as a dependent on your tax form, you must be providing at least half of that person’s support.
If the person is a blood relative or your spouse, they do not need to be living with you for the duration of the year, but otherwise cohabitation is a requirement for the dependent exemption. The gross income of this dependent must be less than the personal exemption amount for that tax year. However, if the individual is under 19, or under 24 and a full-time student, the tax strategy of claiming them as a dependent can still be used.
Income The IRS defines “income” as any money that you receive during the given tax year. Most people can simply review their W-2s (Wage and Tax Statements) to determine their annual income. Taxable income, generally speaking, is the gross income of an individual or corporation, less any allowable tax deductions. It’s important to realize that taxable income can encompass more than just your annual salary.
Taxable income can include profits from stocks or real estate sales, as well as winnings from the lottery, betting on horse races, or any casino (domestic or abroad). Even the cash value of bartered items is considered taxable income. Income that may be part of your gross income but is not identified as “taxable income” would include: child support, proceeds from life insurance policies, inheritances, Workers Compensation payments, Welfare benefits, compensation awarded as a result of physical injury, education scholarships or grants, and income paid to your retirement account (either a 401k or IRA, up to a certain amount).
Overall, taxable income is that portion of your gross income which is subject to taxation by the governing authority, minus any allowable itemized or standardized deductions. Your taxable income is basically the amount of your income that is subject to income tax. [What qualifies as “taxable income” is defined in Section 63 of the Internal Revenue Code, and “gross income” is defined in Section 61 of the Internal Revenue Code.]
Adjusted Gross Income Your Adjusted Gross Income (AGI) is defined as your gross income from all taxable sources, minus certain allowable tax deductions. These “allowable deductions” (also known as “above-the-line deductions”) may include unreimbursed business expenses, medical expenses, alimony, moving expenses, or deductible retirement plan contributions.
Your AGI is important when determining your overall tax liability because it can affect your tax bracket, how much you can contribute to qualified retirement accounts, and which tax credits you may qualify for. On the other hand, “gross income” refers to all income that you received in the form of money, goods, property, and services that is not exempt from tax. This can include any income from sources outside of the United States, as well as income from the sale of your home.
Tax and Credits If you qualify for any tax credits or tax deductions, you will want to take advantage of them. Tax deductions reduce your taxable income and tax credits reduce the actual amount of tax that you owe ― both will increase your chance of receiving a tax refund. Make sure you understand how to properly claim any income tax benefits, as mistakes will delay the processing of your return.
Tax deductions lower your taxable income and they are equal to the percentage of your marginal tax bracket. For instance, if you are in the 25% tax bracket, a $1,000 deduction saves you $250 in tax (0.25 x $1,000 = $250). There are two main types of tax deductions: the Standard Deduction and Itemized Deductions. A taxpayer must use one or the other, but not both. It is generally recommended that you itemize deductions if their total is greater than the standard deduction. Tax credits, on the other hand, provide a dollar-for dollar reduction of your income tax liability.
For instance, a $1,000 tax credit actually saves you $1,000 in taxes. A tax credit is always worth more than a dollar-equivalent tax deduction, because deductions are calculated using percentages. Referring to the numbers above, you can see that a $1,000 credit offers $750 more in savings than a $1,000 deduction. If you have children, you may be eligible for the Child Tax Credit which is a credit worth up to $1,000 for each qualifying child. This credit can help reduce or eliminate your overall tax bill and provide some financial relief for parents raising children.
The Alternative Minimum Tax (AMT) is an extra tax that some people are required to pay in addition to their regular income tax. The main goal of the alternative minimum tax is to prevent high-earners from using tax strategies and special benefits to greatly decrease their tax liability. Over the years, however, the alternative minimum tax has changed quite a bit. Currently, it affects many taxpayers ― including those who do not have very high income. There are several things that can cause alternative minimum tax liability. The most common AMT triggers include: personal exemption, medical expenses, incentive stock options, tax-exempt interest, and long-term capital gains.
Other Taxes Self-Employment Tax (also called “SE tax”) is a Social Security and Medicare tax aimed mainly at individuals who are self-employed. The SE tax payments you make go towards your coverage under the federal Social Security system. Social Security coverage essentially provides retirement benefits, disability benefits, health care benefits (Medicare), and survivor benefits. Note that whenever SE Tax is mentioned, it generally only refers to Social Security and Medicare taxes, and does not include any other taxes that self-employed individuals may be subject to.
Payments Withholding tax (also known as “payroll withholding”) is essentially income tax that is withheld from your wages and sent directly to the IRS by your employer. In other words, it’s like a credit against the income taxes that you must pay for the year. By subtracting this money from each paycheck that you receive, the IRS is basically withholding your anticipated tax payment as you earn it ― sometimes called “pay-as-you-earn” taxation.
While you cannot avoid withholding tax altogether, you can control the amount that is withheld from each paycheck when you fill out your W-4 tax form. Estimated tax is the method that individuals and businesses use to pay tax on their income that is not subject to withholding. This may include income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes, and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your paycheck (salary, pension, or other income) is not enough.
Estimated tax payments are typically made in quarterly installments using IRS Form 1040-ES, which can be filed electronically or by paper mail. The Earned Income Credit (EIC) -- also called the “Earned Income Tax Credit” (EITC) -- was created to help low-income workers, self-employed individuals, and their families. The Earned Income Tax Credit is being utilized by more taxpayers than ever—some for the first time–as a means to offset their loss of (or reduction in) income.
The Earned Income Tax Credit can result in either a tax credit to offset income tax due or a tax refund. The Additional Child Tax Credit is a refundable tax credit that many people qualify to take advantage of. This credit is for taxpayers who have a qualifying child, but did not receive the full amount from the regular Child Tax Credit (worth up to $1,000 for each qualifying child). The American Opportunity Tax Credit (AOTC) is available for the first 4 years of post-secondary education and allows for a tax credit up to $2,500 per student.
Up to 40% of the total tax credit may be refundable, meaning that that even people who owe no tax can get an annual payment of the credit of up to $1,000 for each eligible student. This tax credit covers tuition and fees, as well as course materials. The First-Time Home Buyers Tax Credit is an $8,000 housing tax credit for first-time home buyers only. A first-time home buyer is defined as someone who has not owned a principal residence during the 3-year period prior to the purchase of the qualifying home. The tax credit is equal to 10% of the home’s purchase price (priced at $800,000 or less), up to a maximum of $8,000.
Additionally, this tax credit does not have to be repaid unless the home is sold or is not used as the buyer’s principal residence within 3 years after the initial purchase. Note that this federal housing tax credit has expired for most people.
Refund A tax refund is issued when the amount of income tax that you paid is more than what you actually owed for that year. The IRS has an electronic system in place, called “Where’s My Refund? – It’s Quick, Easy, and Secure.” This is an online tool that can help you determine the status of your tax refund using the Internet. If you filed electronically, you will receive information about your refund within 72 hours after the IRS acknowledges receipt of your e-filed tax return. If you file by paper mail, it will take the IRS longer to process your tax return and you will not able to use the “Where’s My Refund?” system for at least 3 weeks.
Amount You Owe Individuals have many different options for paying their federal income taxes. You can pay electronically (online) with a credit card, debit card, or e-check (electronic check). Or you can pay your taxes by paper mail with a check, money order, or cashier’s check. Additionally, if you wish to pay in cash, there is an option for that as well. Whether you are filing late and/or paying late, the IRS urges taxpayers to pay their bill in full.
It is always recommended that you pay as much of what you owe as you can, and as soon as you can. The longer you wait, the more late fees and interest charges that can accrue. Installment Agreement -- If you cannot pay the full amount due with your income tax return, you can ask the IRS if they will allow you to make monthly installment payments for the full amount or a partial amount. However, keep in mind that you will be charged interest and also possibly a late payment penalty on the tax not paid by the date your return is due, even if your request to pay in installments is granted.
Third Party Designee By checking “Yes” you are authorizing another person (tax preparer, family member, friend) to discuss your tax return with the IRS. Provide their name, phone number, and personal identification number (PIN) (they may choose any 5 digits). Note that you are not authorizing the designee to receive your tax refund, bind you to anything, or represent you before the IRS.
Sign Your Return The 1040 tax form is not valid unless you sign it. If you are filing a joint tax return, your spouse must also sign the form.
Assemble Your Return Make sure you gather all the appropriate documents (your 1040 form, plus any attachments or schedules) needed to file your return. FILING YOUR INCOME TAX RETURN WITH THE IRS You may file Form 1040 by paper mail, by using IRS e-file, or through an approved tax preparer. Filing taxes online is generally safer, faster, and easier ― and you will get your tax refund much sooner if you choose the Direct Deposit option. Decide Which Filing Method Is Best for You You typically have 3 tax filing options: paper filing, tax preparation software, or hiring a professional.
Paper Filing ― Even in today’s day and age of digital technology, many people still feel more secure preparing taxes with good old pen and paper. With paper filing, you are in charge of every detail from start to finish – but there is no immediate tax help available.
Tax Preparation Software ― Tax preparation software is becoming more and more popular for many reasons. Most tax preparation programs will be able to answer any questions you may have. Additionally, much of the software is built to help you take advantage of as many tax deductions and tax credits as possible.
Tax Professional ― When you hire a professional to prepare your federal income tax return, you are generally cutting out all of the “guesswork.” You can be confident that your return is accurate and that you are saving as much money as possible. The downside to this is that you will pass the control to the tax professional, and of course, you have to pay for this tax preparation service.
Traditional Mail vs. Online Filing Those who are filing a paper tax return will need to mail it to the IRS upon completion. On the other hand, if you are using tax preparation software or filing through a tax professional, electronic filing may be a better option. Tax returns that are submitted electronically are often processed faster, which means a faster tax refund for the taxpayer.