One of the most important - and most frustrating - things about tax season is learning the new changes to how you'll have to go about filing your taxes. Some things are consistent, but forms can change.
Form 1040 is one that has undergone some changes you need to know for this year's taxes in particular. You may be wondering the intricacies of what separates the Internal Revenue Service's standard 1040 with variations you've heard about, the 1040A and 1040EZ. The IRS has made significant updates to how information for your 1040 is filed. These changes make the 1040A and 1040EZ essentially obsolete, although the information needed for them is still relevant to the updated form.
Before we get to that, though, let's answer the first question: what is the 1040 and what's the difference between that form and the 1040A?
What Is Form 1040?
Form 1040 is the basic IRS form needed to file taxes, the form in which your taxable income for the year is calculated. In addition to basic information (name, filing status, Social Security number, dependents) the 1040 form has room for your wages and salary as well as other forms of income, such as:
After calculating total income and adjusted gross income, there are lines for tax deductions, should you be able to claim them. This allows for the standard deduction and, if one qualifies, itemized deductions. Expenses that can qualify as itemized deductions include mortgage interest, investment interest and medical expenses. If you are eligible for tax credits, like the Child Tax Credit, the 1040 form is also where you would claim those.
Though just a two-page form, 1040 can be a little complex if you're filling it out yourself and qualify for a number of deductions and credits. If you're using tax software to file, the information you provide will likely automatically be put into your 1040 through the software.
The 1040 form also, at the end, lets you calculate if you are eligible for a refund or if you owe additional taxes.
One other version of Form 1040 that still exists is the 1040-NR, which may need to be filed if you are a nonresident alien who did business of some kind in the U.S. or represent a deceased person or estate that otherwise would have had to file the 1040-NR.
Form 1040A and Form 1040EZ
Prior to the 2018 tax season, the 1040A and 1040EZ were options in lieu of 1040 for those with less than $100,000 of taxable income and fewer specifics to deal with. They were each much shorter than the 1040.
On the 1040A, the number of available tax credits and deductions is much more limited. Most notably, you were not able to itemize deductions on the 1040A. However, those who filed a 1040A were able to do it regardless of status and could still claim dependents. It also had a similar variety of incomes to 1040.
The 1040EZ form was even shorter than the 1040A. You were not able to claim any tax deductions or tax credits (aside from the earned income tax credit). The types of taxable income one could have been far more limited, and you could only use it if your filing status was single or married filing jointly. You cannot claim dependents.
Changes for the Form 1040 Schedules
The details that separated the 1040A and 1040EZ from the 1040 form confounded many taxpayers for years. But if you're preparing all of your tax stuff, you should know that the IRS has done away with the 1040A and 1040EZ forms, instead of creating a more streamlined Form 1040.
This makes things easier for people with simple tax returns - simply fill in the necessary information for your 1040 instead of looking for the other form you may be able to use. But what if you actually have a more complex tax return that benefited from the lengthier 1040 form, what do you do now?
Part of this revamped 1040 form included six different "Schedules" last year that can be attached to the initial 1040 to provide the additional necessary information. This year, they have been pared down to three schedules with certain information that had been on 2018 schedules (like capital gains or losses) now either on the initial 1040 form or merged into the three remaining schedules.
With these schedules, you can supplement your new 1040 with crucial info to potentially help you get further tax deductions and tax credits, and potentially a better tax refund as well.
The three main schedules that let you add new information to Form 1040 are:
- Schedule 1. Schedule 1 lets you add additional sources of or adjustments to income that aren't on Form 1040. Income sources on Schedule 1 include taxable refunds, alimony received, unemployment, business income and rental real estate. Gains from prizes or gambling winnings can also be filed here. Adjustments to income can include paid alimony, self-employed qualified plans like a SEP or SIMPLE IRA, student loan interest deductions, tuition and fees, educator expenses and health savings account deductions.
- Schedule 2. The Schedule 2 form is included if the taxpayer owes additional taxes like the Alternative Minimum Tax (AMT), self-employment tax, household employment taxes and unreported Social Security or Medicare taxes. Schedule 2 also factors in if the taxpayer has to make an excess advance premium tax credit repayment.
- Schedule 3. Schedule 3 is required for those who wish to claim non-refundable tax credits that are not on the 1040 form. Something like the child tax credit is covered in Form 1040, as are refundable tax credits, but the foreign tax credit, education credit, residential energy credit, retirement savings contribution credit and general business credit can be claimed with this schedule.
In the event of more complex tax returns even with these three primary schedules, there are additional ones you can use in tandem with your 1040 form if need be.
- Schedule A. Schedule A is needed if a taxpayer chooses to itemize their deductions instead of taking the standard deduction. The choice to itemize deductions will be based on whether the deductions you can itemize (medical and dental expenses, home mortgage interest, gifts to charity, etc.) would be more than the current standard deduction.
- Schedule B. Schedule B is necessary if you, in the past tax year, had taxable interest or ordinary dividends that totaled $1,500 or more. You would also need this schedule if certain other information regarding interest and ordinary dividends apply to you, such as having accrued interest from a bond or if you had a financial interest in or signature authority over a financial account that is in a foreign country.
- Schedule C. If you run a business or practice a profession as a sole proprietor, you'll need Schedule C to report your profits, business expenses, cost of goods sold and other expenses.
- Schedule D. While the 1040 is where you can report the general number for your capital gains or losses, Schedule D is where you need to break it down in greater detail. It includes sections for both short-term and long-term capital gains and losses.
- Schedule E. Schedule E gives you an opportunity to report supplemental income or losses. There are sections for reporting income or losses for rental real estate and royalties, partnerships and S corporations, estates, trusts and real estate mortgage investment conduits.
- Schedule F. Schedule F is used to report profits or losses from farming, allowing you to break down income and expenses in full detail.
- Schedule H. Schedule H is used if you had a household employee in the tax year and the cash wages you paid them are subject to Social Security, Medicare or federal unemployment (FUTA) taxes. Schedule H is also relevant if you withheld federal income tax for your household employee.
- Schedule J. Schedule J is used if you work in farming or fishing and choose to average your last three years of taxable income stemming from those trades.
- Schedule R. If you qualify for a tax credit for the elderly or disabled, use Schedule R to determine how much you can claim with the credit.
- Schedule SE. Schedule SE comes into play if you are getting taxed on net earnings from being self-employed. This schedule will tell you, based on your circumstances, if you require a short Schedule SE or long Schedule SE.
- Schedule 8812. This schedule is used to give more detail and document the children you are using to qualify for the Child Tax Credit.
These schedules help make even more complicated tax returns easier and more efficient for those claiming more than your average taxpayer, much in the same way the new 1040 form is designed to make simple tax returns easier.