Form 1040 is a form through which US individual taxpayers file their annual income tax returns. This form is used by individuals, small business owners, individuals who run single member LLC or are partner in partnership firm. The form initially contains basic information like Taxpayer’s name, address, filing status, social security number, spouse’s information, dependent’s information. The 1040 form is further divided into two segments – income and deductions about which we will discuss in detail in this article. Below is the image of first page of 1040 form:

1040 or 1040-SR?

Whether to file 1040 or 1040-SR depends upon the age of Taxpayer. If you and/or your spouse are 65 or above as of the year end i.e. 12/31 of that particular year for which you intend to file the return then you have to file 1040-SR. If the age of taxpayer is less than 65 then he/she must file tax return using form 1040.

When one has to file?

Whether one should file the form 1040 depends upon :

Where to find Form 1040?

One can find form 1040 on IRS website. One can go to www.irs.gov/Form1040 for further instructions and latest version of form 1040.

Is Form 1040 and W-2 same?

No. Form 1040 is used to file individual tax return whereas Form W-2 is a form that contains information of income earned through employment like wages and the taxes withheld. The Form W-2 is provided by employer to the employees.

1040 Filing Deadline

April 15 is the filing deadline for most of the years. The date may sometimes shift a day or two if any holiday falls on the 15th. If one cannot file the return before this deadline then that person can file an extension. You can use Form 4868 to file extension. Filing extension gives you time till 15^th October to file a return.

About Form 1040

The initial segment contains about taxpayer’s basic information. Further the form is divided in two segments – income and deductions. The Form 1040 captures income earned through wages, interest, dividend, IRA distributions, pensions and benefits, social security benefits, capital gains and other income. The deductions consider standard or itemized deduction, Qualified Business income deduction (if any). After these deductions we derive at taxable income. After taxable income is derived, next line item on the 1040 form is tax. So, tax is calculated on the taxable income using the applicable tax rate.

After the tax, the form 1040 asks for credits. One can input all those credits that are applicable in their respective situation. Credits include amounts of child tax credit or credit for dependents, foreign tax credit, credit for child and dependent care expenses, education credits and many such other credits. 

Standard Deduction or Itemized Deduction?

Form 1040 allows a taxpayer to take standard or itemized deduction whichever is higher. Standard deduction is a deduction that reduces a taxpayer’s income by fixed amount. Itemized deduction is a sum of eligible expenses. Amount of standard deduction is dependent upon the filing status while Schedule A is used to figure out one’s itemized deduction. Itemized deduction contains amounts of Medical and Dental expenses, amounts paid towards state and local taxes, mortgage interest, gifts to charity, casualty and theft losses and other itemized deductions.

Schedules related to form 1040

Schedules are forms that are required to be prepared along with Form 1040 when you have few particular income or deductions. These schedules are used to show in detail information about a line item on form 1040. Below are some frequently used schedules.

Schedule 1: Additional Income and Adjustments to Income

Schedule 1 of Form 1040 shows all the additional income received by taxpayer apart from the incomes that are mentioned on form 1040. Incomes such as Taxable refunds, alimony received, Business Income Rental income, other gains/losses derived on Form 4797, farm income, unemployment compensation, Jury duty pay, and many such other incomes. Also, Schedule 1 shows adjustments to income like Educator expenses, certain business expenses, health savings account deduction, moving expenses, self-employed health insurance deduction and many such other adjustments.

Schedule 2: Additional Taxes

Schedule 2 reports additional taxes such as Alternative minimum tax, additional social security and Medicare tax, Household employment tax, Net investment income tax, Additional tax on Archer MSA distributions and many other such taxes.

Schedule 3: Additional Credits and Payments

Schedule 3 reports Additional Credits and Payments such as foreign tax credit, Education credits, General business credit, qualified electric vehicle credit, Credit for federal tax on fuels and many others. Non refundable credits are flown to line 20 on form 1040 and refundable credits are flown to line 31 on Form 1040.

Schedule A: Itemized Deductions

Schedule A reports Itemized Deductions and such deductions includes Medical and Dental care expenses, state and local taxes paid, mortgage interest paid, gifts to charity, casualty and theft losses and other itemized deduction. The total of these Itemized Deductions is flown to line 12a.

Schedule B: Interest and Ordinary Dividends

Schedule B reports about interest and dividend income earned by the taxpayer. The total of Interest or dividend received is above $1,500 then only the Schedule B is used. These amounts flow to 2b and 3b of Form 1040.

Schedule C: Profit or Loss from Business

Schedule C reports income and expenses of business. This Schedule asks for name of Business, principal business or profession, business address, Name of Proprietor. This schedule is used to report income and expenses of a sole proprietor only. The amount of profit or loss is flown to Schedule 1 of Form 1040.

Schedule D:

Schedule D is used to report the sale or exchange of a capital asset, gains from involuntary conversions, Capital gain distributions not reported directly on Form 1040 and Nonbusiness bad debts. This Schedule is broadly divided in two sections: Short-Term Capital Gains and Losses and Long-Term Capital Gains and Losses.

Conclusion:

Form 1040 is a major part for individual’s tax filing. In nutshell, if an individual is earning any income through some source then he/she has to complete some or the other part of form 1040.