The IRS tax return form 1040 is a detailed IRS document that allows taxpayers to claim many deductions and credits. Other types of 1040 return are shorter and more manageable.
Why should you complete a 1040 instead of a 1040-EZ? Because you could be missing deductions and credits that could lower your taxable income, which could either reduce your tax bill or get you a bigger refund.
Each form has its advantages and disadvantages. We will break those down to help you decide which form is the best for your circumstances.
1040 Tax Forms: The Basics
The three forms are:
Tax Form 1040
This return is two-pages long, and it is often referred to as “the long form” because it is the most in-depth return of the 1040 series. Almost all filers can use this type of return, but some taxpayers must use this form, such as:
- A self-employed person who made more than $400
- If your taxable income is more than $100,000
- An individual that earned tips, but did not report the money on the W-2
- A person that received income from a trust or an estate
- A partner that received funds from a partnership
- A shareholder who received funds from an S corporation
There certain financial events that must be declared and reported using the 1040. Some examples of these are:
- Selling of stocks or bonds
- You incurred qualifying moving expenses
- You earned foreign income
- You owe alternative minimum taxes
- You owe household employment taxes
The 1040 allows filers to take tax credits and itemized deductions. U.S.News reports itemizing does require good record keeping, but it could lead to a more substantial tax break. Itemized deductions can include:
- Interest paid on a mortgage up to $1 million
- Property taxes
- Investment fees, such as broker fees or safety deposit box charges
- Qualifying medical costs, such as pharmaceuticals, co-pays, and premiums, within the IRS’ cap
- Accounting and tax preparation fees
Tax form 1040A and eligibility
This return is also two-pages, and it allows taxpayers to declare some adjustments and tax credits. Some people that are eligible to use the 1040-a are:
- Taxpayers with taxable income less than $100,000
- Individuals whose earnings came from tips, wages, or salaries
- Retirees whose income came from IRAs, pensions, taxable social security, or the railroad retirement plan
You cannot itemize deductions with this form, but you can take many of the common tax credits.
Most individuals should try to claim all of the tax credits they and their dependents qualify for because you can subtract the amount of the credit from your tax bill.
For example, if you owed the IRS $1,000, and you have a tax credit for $200 your tax bill would only be $800 because of the credit. CNBC News reports that tax credits can significantly reduce a filer’s tax liability.
Some allowable credits on this form are:
- Dependent care, which includes daycare
- Child tax credit
- Higher education tax credits
What is the Difference Between Tax Form 1040 and 1040A?
Some of the differences between these two forms are the income limits and the source of income.
You cannot itemize deductions in the 1040-A. All credits can be claimed on the 1040, but most of the standard credits are allowed on the 1040-A.
Claiming Dependents on Your Taxes
Both documents allow the filer to claim dependents. Having dependents on your return effectively reduces your tax liability. Many, but not all, dependents are children. If their parents are divorced, the two parties should work out who is going to claim the child because the child can only be claimed on one return.
If both parents claim the child, the IRS will use a set of tiebreaker rules to decide which parent will get to use the child as a dependent. Bank Rate describes some of the factors that qualify a person as a dependent, such as:
- A biological, foster, or adopted child that has lived with you for more than half the year, and you provided more than half of the child’s financial support.
- Relatives, such as parents or grandparents, which you provide half of their financial support. The relatives must fall within income guidelines also.
Tax Form 1040-EZ
This return is the less complicated returns of all the 1040s. For a taxpayer to use it, they must have made less than $100,000 in taxable income. The income is only allowed from:
- Tips, wages, or salaries
- Interest, but it must not be greater than $1,500
- Fellowship grants and scholarships that are taxable
- Dividend payments from the Alaska Permanent Fund
- Unemployment benefits
If you use the 1040-EZ, you cannot claim any dependents or itemize deductions. However, you can get a few credits such as the earned income tax credit (EIC).
What is the Earned Income Tax Credit (EIC) and How Is It Calculated?
According to the Center on Budget and Policy Priorities, you can calculate the EIC based on the number of children declared, marital status, and income. It is a refundable credit, which means if the credit covers the entire tax bill, and there are still funds left over. The IRS sends the extra funds to the taxpayer in the form of a refund.
Not all tax credits are refundable. Some are nonrefundable, which means if the credit pays the entire tax bill, and there is still some money left over. The extra money will not be refunded to you unless it is a carry-over or carry-forward credit. Carry-over credits can be applied to next year’s tax bill or used to pay back taxes. Not all credits can be carried over.
Form 1040A vs 1040-EZ
Some of the differences between these two returns are the source of income.
The EZ form only allows for limited sources. The 1040-a allows many common credits to be applied, while the 1040-EZ provides for just a few credits. While you can claim dependents with the 1040-a, filers cannot claim any dependents with the 1040-EZ. Although the EZ form is simple, it does not allow for many details that could effectively lower a person’s tax bill or get them a larger refund.
1040 vs. 1040A vs. 1040-EZ
The three filing forms begin the same. Individuals and married partners can use all three forms. You will need everyone’s social security number, legal name, which the IRS recognizes as the name on your social security card, and a physical address.
The difference between filing statuses
With the 1040-EZ, there are only two options:
- Married filing jointly
The 1040 and the 1040-a allow for those two options plus:
- Married filing separately
- Head of household
- Qualifying widow/er
Your filing status can affect your standard deduction.
For example, The Balance discusses how filing as the head of household may be more advantageous to some because a head of household is a single person, who pays for 50% or more of the cost of running the household and has at least one dependent. The head of household receives a larger standard deduction than a single person.
A qualifying widow is a widowed single person who has dependents. For two years after the death of the spouse, the widow can file as a qualifying widow, which allows the individual to retain the standard deduction rate of a married couple. It is a larger deduction. If the single person remarries within the two-year filing period, they will not qualify for the filing status.
The difference in exemptions
On the 1040 and the 1040-a, there will be an exemption section. An exemption stands for an amount that will be taken out of the adjusted gross income (AGI). A personal exemption would be for the primary taxpayer and the spouse, and others are referred to as dependent exemptions.
Remember, dependents can only be claimed on the 1040 and 1040-a. Dependents cannot be claimed on the 1040-EZ. Personal exemptions, an individual and a spouse, can be claimed on all of the forms.
The difference between income
While documenting your income, be mindful that there are income limits and qualifying income sources designated to each form.
Use the 1040 for taxable income over $100,000, and taxpayers who earned less can use the other two forms as long as the income you are reporting was derived from tips, wages, salaries, and other allowable resources.
Some examples of income that can only be declared on the 1040 are:
- Income from a personal business
- Rental property income
- Income from farming
The difference between deductions
Regarding itemized deductions, you can only claim them in 1040. Investopedia gives some examples of deductions, such as:
- Home loan interest.
- Private mortgage insurance (PMI). As per the Consumer Financial Protection Bureau, this is an insurance your mortgage company requires you to have if you did not put a large down payment on your property. This insurance can be a significant portion of your mortgage payment.
- Charitable or nonprofit organization donations up to an individual’s cap. The IRS calculates this cap off of a taxpayer’s AGI.
- Student loan interest.
- Educator expenses, which include school supplies, equipment, and books.
Earned Income Tax Credits, IRA Credits and Childcare Credits:
You claim earned income credit (EIC) in the 1040ez, while claiming all common credits in the 1040-a, such as:
- Educational credits
- IRA credits
- Childcare credits
- American opportunity credit, a credit for higher education
1040 accepts all credits including:
- Foreign tax credits
- Residential energy credits
- Retirement savings credit
Also, the process is basically the same to complete all of the 1040 forms. Calculate if you will receive a refund. If so, you can opt to have it deposited directly into your bank account by supplying an account and routing number.
What Happens if I Owe? How to Pay Your Taxes:
Subsequently, if you end up owing taxes, the IRS will accept payments in several forms, such as:
- Cash. As reported by Forbes, the taxpayer must first register with the IRS then they can pay at registered 7-Eleven stores.
- Money order or checks. Make this out to the United States Treasury, not the IRS.
- Debit or credit cards
- Bank transfers, wires, or electronic payments
Above all, contact the IRS to make a payment arrangement plan if you cannot afford the tax bill. And to determine that, start on your taxes as early as possible.