Which Tax Form Should You File?
Differences Between Forms 1040, 1040A and 1040EZ
One of the challenges taxpayers come up against at tax time is figuring out which form to file. One way to look at it is that the Internal Revenue Service makes it easier by offering individual taxpayers their choice of three. Of course, you then have to decide which one of the three you should use.
Here's the basic rule: Consider using the simplest form for your needs. This will save you time in preparing your return, and the IRS will be able to process it more quickly and efficiently. The three forms available include Form 1040, which is the standard tax form, Form 1040A, which offers fewer categories for reporting income and claiming deductions, and Form 1040EZ, which is the shortest and easiest to complete.
That said, there are certain rules that apply to each. Sure, you might want to file Form 1040EZ, but you might not be able to, at least not if you want to claim all the tax perks you're entitled to. Here are the rules and considerations that apply to each form.
You can use Form 1040EZ if your taxable income is less than $100,000 and you have less than $1,500 in interest income. Your income can only derive from wages, interest, unemployment compensation, and/or Alaska Permanent Fund dividends.
You—and your spouse if you're married—most be under age 65. Your filing status must be single or married filing jointly. You can't use this form if you qualify as head of household and want to claim that beneficial filing status, or if you're married but want to file a separate return.
You cannot have any adjustments to income—those advantageous "above the line" deductions that appear on the first page of Form 1040 to reduce your adjusted gross income. You must claim the standard deduction. You can't itemize.
You can claim the earned income credit when you file Form 1040EZ, but that's about it. No other tax credits are available to you if you use this form.
Form 1040A is known as the "short form." Many taxpayers qualify to use this one. It allows you to claim the most common above-the-line adjustments to income, including IRA contributions, the student loan interest, tuition and fees deduction, and classroom expense. But as with Form 1040EZ, your taxable income must be under $100,000. Unlike Form 1040EZ, there are no age limits or filing status restrictions.
You can have income from wages, interest, dividends, capital gain distributions, IRA or pension distributions, unemployment compensation, Social Security benefits, scholarships or fellowships, or Alaska Permanent Fund dividends. You cannot have exercised any incentive stock options.
You can't use Form 1040A if you want to itemize your deductions. You must claim the standard deduction instead.
You can claim the following tax credits: The Child and Dependent Care credit, the Credit for the Elderly and Disabled, the American Opportunity credit, the Lifetime Learning credit, the Retirement Savings Contributions credit, the Child Tax Credit, the Additional Child Tax Credit, and the Earned Income Credit.
Parents of college students may want to consider filing Form 1040A instead of Form 1040 because it can help their college student qualify for a larger financial aid package under the simplified needs test.
Commonly known as the "long form," any taxpayer can use Form 1040. It takes longer to fill out, but Form 1040 can handle any tax situation, no matter how complex.
Some taxpayers must use Form 1040, including those who have taxable income of $100,000 or more and those who want to itemize deductions, such as those for mortgage interest or charitable contributions.
You must use Form 1040 if you have income from a rental, business, farm, S-corporation, partnership, or trust. You must also use this form if you have foreign wages, if you paid foreign taxes, or if you are claiming tax treaty benefits. You must use it if you sold stocks, bonds, mutual funds, or property during the tax year.
You can claim all above-the-line adjustments to income on this form, including the deduction for penalties on early withdrawal of savings, moving expenses, and health savings accounts.
You must use Form 1040 if you have to calculate surtaxes, such as Social Security and Medicare taxes on unreported tips, household employment taxes, or the 10 percent tax on early distributions from a retirement plan.
If you have any doubt whatsoever, you should use Form 1040. You can never go wrong by using this tax form.
Other IRS Forms You Might Need
In addition to filing your annual tax return, you also may have to file other documents with the IRS or the Treasury Department. Here are a few of the most common.
- Gift Tax: File Form 709, the United States Gift Tax Return, if you gave away more than $14,000 during the year to any one individual. The IRS offers links to Form 709 (PDF), IRS Instructions, and Publication 950, Introduction to Estate and Gift Taxes. The gift tax return is due on the same day as your Form 1040. Usually, this is April 15, or October 15 if you request an automatic six-month extension.
- Foreign Bank Accounts: You must file FinCEN Form 114, Report of Foreign Bank and Financial Accounts if you have more than $10,000 in foreign banks, brokerage accounts, or other financial institutions located outside the U.S. See the overview of Reporting Foreign Bank Accounts for more details. The foreign bank account report is filed directly with the U.S. Treasury Department and is due June 30.
- Schedule C: If you're a sole proprietor or otherwise own your own business or receive untaxed income from work on a Form 1099-MISC, you'll want to complete and submit Schedule C to determine your taxable income from these sources. You will also have to file Schedule SE to calculate your self-employment taxes.