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Form 1040

The Form 1040 is the main document you fill out for your taxes and it comes with 12 optional “Schedules.” Each Schedule goes into greater detail into an aspect of income taxes, such as Schedule A: Itemized Deductions. You won’t necessarily need every single one of those Schedules but here’s a recap of each one (some of these will change from year to year, for example Schedule M will expire along with the Making Work Pay Credit):

• Schedule A: Itemized Deductions
• Schedule B: Interest and Ordinary Dividends
• Schedule C: Profit or Loss From Business (Sole Proprietorship)
• Schedule D: Capital Gains and Losses. There is a Schedule D-1 if there aren’t enough fields on Schedule D.
• Schedule E: Supplemental Income and Loss
• Schedule EIC: Earned Income Credit Qualifying Child Information
• Schedule F: Profit or Loss from Farming
• Schedule H: Household Employment Taxes
• Schedule J: Farm Income Averaging
• Schedule M: Making Work Pay
• Schedule R: Credit for the Elderly or Disabled
• Schedule SE: Self-Employment Tax

How do you know whether you need a Form 1040 or a Form 1040A or Form 1040EZ? It comes down to the complexity of your tax situation, in descending complexity. For example, if you plan on claiming the standard deduction, chances are one of the simpler forms is enough.

Form 1040A

The simpler form 1040A has only four schedules:

• Schedule 1: Interest and Ordinary Dividends
• Schedule 2: Child and Dependent Care Expenses
• Schedule 3: Credit for the Elderly or the Disabled
• Schedule EIC: Earned Income Credit Qualifying Child Information

As you can see, it has no Schedule A equivalent, for itemized deductions, because 1040A doesn’t let you claim itemized deductions. If you need to claim anything on a Schedule that isn’t in the above list, chances are you’ll need to use a Form 1040. Another rule is that your taxable income has to be below $100,000 to use the Form 1040A.

Form 1040EZ

The simplest of the three tax forms it the Form 1040EZ, which is a single page (with another worksheet page). You can use it if your taxable income is below $100,000, you’re filing single or married filing jointly, you (and spouse if applicable) are under 65 and not blind, you are not claiming any dependents, and your interest income is $1,500 or less.

As you can see, the rules aren’t so simple to understand, which explains the rising popularity of tax preparation software. Fortunately there are free tax filing options out there if you qualify for them.

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• 2011 income taxes: How to file an extension with the IRS
• How Tax Withholding Works
• 2010 Bush Era Tax Cuts Extenders Bill Explained
• Ohio Small Business Health Insurance Tax Credit
• Long Term Capital Gains Tax Rates Increase in 2011

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Finance News by Megan Parker