Understanding IRS 1040 Form (Free Forms)

One of the main purposes of the 1040 form is to help taxpayers calculate their taxable income and tax associated with that very income.

Formally;

An IRS 1040 Form is an official document used by US taxpayers to file the federal annual income tax returns. Usually, the form contains sections where a taxpayer is expected to indicate their taxable income within one year. Upon filling in such details, the government will determine whether the taxpayer has to pay additional taxes or receive a tax refund. 

IRS 1040 Form – Overview

One of the main purposes of the 1040 form is to help taxpayers calculate their taxable income and tax associated with that very income. It does this by first calculating the Adjustable Gross Income (AGI) from the total reported income. Then, it helps the taxpayer to claim any other admissible adjustments or above-the-line deductions. Note that the AGI plays a critical role in determining the number and amount of deductions you will incur.

Some of the itemized deductions an IRS Form may list include:

• Mortgage interests
• Income from charities
• Taxes from state or local government
• Excess medical expenses

Schedules Used to Calculate Taxes from Form 1040

While the process of calculating taxes from Form 1040 is simple and direct, there are other additional forms and schedules that will make the tax calculations easier for the taxpayer.

These include:

Schedule 1

Schedule 1 is a document that helps report other sources of income other than the primary source. These sources may include, but not limited to alimony, compensation from unemployment, educator expenses, profits or losses from the sale of property or business, health saving contributions, and tuition or fee deductions.

Schedule 2

Schedule two helps taxpayers to record all the additional taxes made either to the federal or local government. Usually, it is divided into two basic parts. The first part records all the alternative minimum tax as well as payment of any excess premium tax credit. The second part records any other self-employment taxes, Medicare tax and unclaimed social security, domestic employment taxes, and section 965 for foreign companies. 

Schedule 3

This document reports any credits and payments the taxpayer is supposed to have. The credits are further categorized into refundable and nonrefundable. Some of the common credits included here are child-dependent credits, residential energy credits, and taxes overpaid from previous years. 

Schedule A

Schedule A basically includes all the deductions made on taxpayers’ forms. They include but are not limited to medical expenses, mortgage interests, local and state taxes, casualties, losses, and donations.

Schedule B

The document basically reports interest and dividends that exceed $1,500. Therefore, if your dividends or interest happen to fall within that bracket, be sure to include it in your IRS form.

Schedule C

If you run a business, this section best befits you. It lets you report all the profits and losses gained from your business on an annual basis. Other than businesspeople, section C can also be used by independent contractors, sole proprietors, and freelancers. 

Schedule D

This document contains gains and losses made on the capital investment. 

Schedule E

This document reports profits and losses made from real estate business, S-corporations, trusts, and other pass-through entities.

Schedule F

This document is used by farmers to report their expenses, losses, and profits made from farming activities. 

Schedule H

Household workers such as nannies, caretakers, and pet sitters will use this form to determine their tax returns. 

Schedule J

Farmers and fishermen who wish to average their income for the past three years can use this kind of form to have their income tax distributed over the years. 

Schedule R

Individuals who are disabled or elderly will have to prepare this form while filing their annual tax returns.

Schedule SE

If you are a business person or contractor with profits exceeding $400, then you will use this form to calculate your tax returns under the self-employment category. 

8812

This document is prepared by taxpayers claiming the additional child tax credit.

Types or Variants of Form 1040

Other than the standard Form 1040, there are other variants that a taxpayer needs to be aware of. These variants come in handy, especially if your income is from different sectors of the economy.

Below are the common types/variants of Form 1040:

Form 1040

Form 1040 is the most common type many taxpayers use to file their tax returns. Usually, it contains sections where individuals are required to report their income details. Also, it enables fillers to determine their annual tax, refunds as well as other additional tax owed.

Form 1040-SR

Form 1040-SR is similar to Form 1040, only that it’s used by senior taxpayers above 65 years of age. This form was introduced in 2019 for senior citizens who were finding it difficult to read. Therefore, it is written with charts and larger fonts for clear visibility. 

Form 1040-NR

This form is used by taxpayers who aren’t US citizens. This includes foreigners who are doing various business or trade within US territory. Or, they can be representatives of deceased persons who used to file 1040-NR Forms. 

Form 1040-X

In some situations, a taxpayer may forget to include other key information in the original 1040 form. In order to make changes, they can always file Form 1040-X to rectify the previously filed 1040 Form. 

Form 1040 ES

This form is used to determine an estimate of quarterly taxes. Note that the estimated tax here refers to any amount that isn’t withheld. That’s said, some of the income that this form doesn’t apply to include income from self-employment, dividends, interests, pension, social security benefit, compensations, and rentals, to mention a few. 

Form 1040 V

This form is often attached to the payments made by taxpayers on balance stated in the ‘amount you owe’ line. 

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Understanding the Format of 1040 Forms

The updated Form 1040 has two pages that each taxpayer needs to fill out. These include:

Standard deduction section

The standard deduction section basically contains fillers information such as the official name, physical address, social security number (SSN), and the details of dependents. Other than the personal details, this section also requires the taxpayer to indicate whether they are on a full-year health coverage plan. Also, it seeks to enquire whether the filler is willing to contribute $3 meant for presidential campaigns. 

Other standard tax deductions that have taken effect since 2020 include the following:

• Single or married filing separately
• Marriage filling jointly or a qualifying widow
• Head of household

Under the standard deduction section, new tax legislation has been incorporated. This tax legislation has removed several deductions from taxpayers’ lists, including tax preparation fees, unreimbursed employee costs, and fees associated with a job transfer. 

Income section

This page basically requires the filler to include their income details. This may include the annual salary or wages, taxable interests, capital gains, social security benefits, pensions, to mention a few. Additionally, this section enables the filler to seek higher standard deductions as brought by the new tax and job cuts act.  

Changes Made in the Federal Form 1040

Due to the changing economic times, the federal government have imposed some new changes to the IRS Form 1040.

Some of the changes are discussed below:

New line 30 for a recovery rebate credit

The recovery rebate credit was added to enable taxpayers who don’t get payments to start receiving larger payments from the government. This change was introduced in 2020, a time when most taxpayers faced tough economic times brought by the novel coronavirus. As a government stimulus, the recovery rebate credit makes it possible for taxpayers to claim the amount as refundable credits.

“Amount you owe” section of form 1040

With the new changes being made in the ‘Amount you Owe’ section, employers are now allowed to defer payments on their social security tax share for fillers on Section H and Section SE, respectively. However, the deferred amount will have to be reported in line 12e of Form 1040 as “Deferred for certain Schedule H and SE taxpayers.”

Three lines to report withholdings

The three-line changes made on report withholdings will affect taxpayers in the following manner: first, line 25a of Form 1040 will now be for W-2 Withholdings. Secondly, line 25b will change to 1099 withholdings. Lastly, line 25c will be used for any other withholdings not covered by the lines mentioned prior. 

A new credit for sick and family leave

The last change imposed on the Form 1040 is credit for sick and family leave. Note that the new credit is added on schedule 3, line 12b. Also, it will be calculated based on Form 7202.

Frequently Asked Questions (FAQs)