Some people may not be aware that there are actually three different types of 1040 forms that can be used to file their federal income tax return. All taxpayers are able to use form 1040 to file their taxes however if they want to use the 1040EZ or 1040 A forms there are a few requirements that must be satisfied.
So what is the difference you ask? The 1040A form is a shorter version of the 1040 form. It is however more complex than the 1040EZ form, the simplest of the three. In order to use the 1040A form to file your taxes, your income must fall below $100,000 and you must claim the standard deduction instead of itemizing your deductions.
To start, one must first list their exemptions as well as choose their filing status prior to reporting any income. This is because different tax brackets are used for “single” and “married filing jointly” for example.
The number of exemptions you can claim for yourself and your dependents is not affected by your filing status however. Each one of them works essentially like a deduction, with the amount reducing your taxable income. Therefore, the more exemptions a person has, the lower their tax liability will be. The top of the form has a section to list the names, social security numbers, and relationship of each dependent.
The form 1040A’s income section allows only certain types of income. Income types such as that from a business that is operated as a sole proprietorship still need to be reported because it is taxable, but a full-length 1040 would need to be used instead.
You will be able to claim certain adjustments once you have reported your income on the 1040A. They include things like student loan interest and payments, IRA contributions, and educator expenses.
You will be able to subtract your deductions, in this case the standard deduction, as well as your exemption allowances on the second page of the form 1040A. These are taken from your adjusted gross income to determine your taxable income. From here your next task is to determine your tax that you owe by using the tax tables located in the instructions. This is done by locating the appropriate tax range.
Claiming tax credits
With your tax calculated you can then claim a limited amount of credits such as child and dependent care credits, credits for the elderly and disabled, and education credits. Each credit reduces your tax. Once all of your credits are calculated your tax is reduced further by your tax payments and withholdings.
In closing, the primary difference between the 1040A and the form 1040 is that the 1040 allows you to itemize your deductions, instead of taking the standard deduction required on the 1040A. As discussed before the 1040A also has some restrictions on the types of income you can report, so depending on what income you have, this will decide which form you need to use.