Your Guide to the 1040 Tax Forms -- Which One Should You Use?

By Matthew Frankel Markets Fool.com

Individual taxpayers in the United States use IRS Form 1040 when filing their federal income taxes. The form comes in three varieties -- the standard 1040, the 1040A, and the 1040EZ. The purpose of the 1040 is to report your income, claim your deductions, exemptions, and tax credits, and to calculate your federal income tax.

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All versions of the 1040 require you to fill out your personal information, such as your name, address, and Social Security number. You'll also need to sign the form, either on paper or with an electronic signature.

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Form 1040EZ

We'll start with the simplest of the three versions of the 1040 tax form, the 1040EZ. In a nutshell, the 1040EZ is designed to be used with simple, uncomplicated tax returns.

To use the 1040EZ, you must meet the following criteria:

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  • Taxable income is less than $100,000.
  • You don't have any dependents.
  • You're not claiming any adjustments to income. This includes the student loan interest deduction, traditional IRA deduction, and the moving expenses deduction, among others. For a complete discussion of adjustments to income, check out this other article.
  • You're not claiming any tax credits, other than the Earned Income Credit (EIC).
  • Your only sources of income were wages, salaries, tips, unemployment compensation, Alaska Permanent Fund dividends, and/or taxable interest less than $1,500.

As you can probably imagine, many taxpayers cannot use the 1040EZ. If you qualify, however, you'll find that the 1040EZ is a simple, one-page form, that's rather easy to understand, even without much knowledge of the tax system.

In the first six lines of the 1040EZ, you'll enter your income and subtract your standard deduction, calculating your taxable income. On the next six lines, you'll enter your withholdings and EIC (if applicable), and determine your tax for the year. Finally, in the last section, you'll claim your refund or calculate the additional amount of tax you owe.

Form 1040A

The next form, in terms of complexity, is the 1040A. The main difference between the 1040 and the 1040A is the ability to itemize deductions, which can only be done with the 1040.

In addition, to use the 1040A, you must meet the same taxable income restriction ($100,000) as the 1040EZ. However, you can claim dependents on the 1040A, and there are more adjustments to income and tax credits available.

Specifically, to use the 1040A, all six of these criteria must be met:

  • All of your income is in the form of wages, salaries, tips, interest, ordinary dividends, capital gains, taxable scholarship and fellowship grants, pensions, annuities, IRAs, unemployment compensation, Alaska Permanent Fund dividends, Social Security, or railroad retirement benefits.
  • You don't intend to claim any adjustments to income, other than educator expenses, the IRA deduction, student loan interest deduction, or the tuition and fees deductions.
  • You don't want to itemize deductions.
  • Less than $100,000 in taxable income.
  • You don't have any tax credits other than the child and dependent care credit, elderly or disabled credit, education tax credits, Saver's credit, child tax credit, EIC, additional child tax credit, and premium tax credit.
  • No alternative minimum tax adjustment on stock you acquired from the exercise of an incentive stock option.

If you don't meet all six of these requirements, you need to use the more complex form 1040.

On the first page of form 1040A, you'll choose your filing status, list your dependents, and claim your exemptions. Then, you'll list all your sources of income, and subtract your adjustments to determine your adjusted gross income.

The second page of the 1040 is where you'll subtract your standard deductions and exemptions, determine your tax, and add in any tax credits you're entitled to. You'll then compare the tax you owe with your withholdings to determine whether you can claim a refund or need to pay more.

Form 1040

Finally, Form 1040 is the most complex of the three. The general structure of the 1040 is the same as the 1040A (list dependents, state your income, subtract adjustments, calculate deductions/exemptions, determine your tax, and either claim a refund or calculate additional tax you owe).

It's also worth mentioning that you can choose to use a more complex form than you're required to -- just not the other way around. For example, if you qualify to use the 1040A, there's nothing wrong with using the 1040 instead.

The most common reason someone would need to use the 1040 instead of one of the simpler forms is for itemized deductions. Taxpayers have a choice between taking the standard deduction or itemizing, and for many people, itemizing is the more lucrative choice.

In addition, here are a few other common reasons you would have to use the standard 1040 (NOTE: There are many other reasons you may have to use the 1040 instead of the others):

  • Your taxable income is more than $100,000.
  • You have any income from self-employment.
  • You're claiming the adoption credit.
  • You must repay the first-time homebuyer credit.
  • You're eligible for the health coverage tax credit.

In a nutshell, the 1040 is the universal U.S. tax form, meaning that it can be used by anyone who needs to file a personal federal income tax return with the IRS. It's the form you use if you don't meet the strict criteria of one of the two less-complex tax forms.

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