When filing your Federal tax return there are quite a few forms that you have available to use to file. One of the forms happens to be the 1040A form. Today, we will be explaining in detail what this form is used for and which taxpayers should utilize it when filing their Federal tax returns.
How Form 1040A and Form 1040 Differ
The filing status and exemption sections are similar in both forms. However, they differ because of the income types that they accept and the adjustments that you can claim. Form 1040A is shorter than form 1040 and you are only allowed to itemize your deductions on form 1040.
Which form to use?
The 1040A form is the short version of the form 1040. The 1040EZ is the easiest and is mainly used when they are no to little deductions. With 1040A, you can claim deductions and tax credits. Compared with the 1040EZ the 1040A lets you claim IRA dedications in addition to claiming student loan interest.
There are benefits in using form 1040A and that is it is faster to complete than the standard 1040 as well as being quicker for the IRS to process. If you are owed a refund, the faster your paperwork is claimed and accepted, the sooner you will get your refund.
To qualify to use form 1040A there are six different conditions that you have to meet. Your income must have been from wages, interest, dividends, scholarship, Social Security or pensions. You have to claim at least one of the following adjustments: IRA contributions, college tuition and fees deduction or classroom expenses.
Your taxable income must be $100,000 or less. You had no incentive stock options or you are claiming only the credits owed to you such as child tax credit, earned income credit, education credits, and credit for dependent care of the elderly and disabled.
The type of income that you can report on form 1040A is limited. For example, accepted income types include, but are not limited to, capital gains, unemployment compensation, IRA pensions, wages and tips. However, if you are self-employed you will not be able to use this form. Instead, you have no choice but to use the standard 1040 form.
Once your income has been reported on the form there are certain adjustments that can be claimed so your AGI can be calculated. For example, you can deduct tuition payments, interest from student loans, IRA contributions and educator expenses.
Exemptions & Filing Status
The first section of the form consists of your exemptions and filing status. This has to be done before you report your income. This is because each filing status has different tax brackets that are utilized to calculate your income tax.
Keep in mind, your filing status does not influence your exemption amount that is claimed for yourself and your dependents. Exemptions work similar to deductions, meaning they reduce your taxable income. Therefore, the more exemptions you have the lower your tax liability is.
At the top of the form, you will have to include the names and social security numbers of the dependents and reveal their relationship to you.
Tax, Payments & Credits
The second page of this form is where you will subtract the standard deduction and your exemptions from your AGI to determine your taxable income. Then, you will be able to find out how much you owe in taxes by locating the range for your taxable income and filing status via the tax tables found in the instructions.
Once this has been calculated you will be able to claim a limited amount of tax credits. These credits will allow you to reduce your tax bill on a dollar for dollar basis. Once done with the tax credits you will reduce the tax amount again by reducing your tax payments and withholdings.
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