The first financial information that Form 1040 requires is call Income. Income includes all sources of income. It begins with wages, salaries, tips, ete that are reported on the W-2. Othe comon sources of income include alimony, unemployment compensation, child support, social security benefits, pensions and annuities, IRA distributions, tax exempt interests, and taxable refunds, credits, or offsets of state and local income taxes. There are other forms of income that require a schedule to be attached. If a filer earned what is called a tax-exempt interest, Schedule B should be included in the tax return.
Business income requires Schedule C or Schedule C-EZ; Capital gain or loss requires Schedule D; income from real estate, royalties, partnerships, etc. require Schedule E. ; and income or loss from a farming business requires Schedule F. After a filer has listed all income, then the IRS allows certain expenses to be deducted. For example, the person who receives alimony counts it as income, but the person who pays alimony counts it as deduction from income. The deductions are made in the section called Adjusted Gross Income.
Some of the most common deductions that are allowed include educator expenses (like the money teachers spend to buy things for their students), health savings account, moving expenses (especially if the filer had to move because the job required it), tuition and fees, and student loan interests. After all deductions have been made from income, the balance left is called the adjusted gross income. Additional deductions are made in the next section called Tax and Credits. The Tax and Credits section is one of the most complicated sections of the tax form. If it is done properly, the filer would benefit.
In this section, one of the most important decisions the filer would make is to decide whether to take standard deductions or itemized deductions. If the wrong choice is made, it may increase the tax burden or reduce the refund of the filer. The Form 1040 instructions explain how to take the standard deductions. If a filer is going to itemize, he or she might need professional help to maximize deductions. Itemized deductions are made on Schedule A. After the standard or itemized deductions have been subtracted from the adjusted gross income, the amount left is what the filer taxes are based on.
It is called the taxable income. A tax table is used to determine the taxes. In the next sections of Form 1040, the taxes the filer paid and tax credits are added. Tax credits include the Earned Income Credit (EIC) for low-income filers with qualifying dependents. If these exceed the taxes due, the filer gets a return. If these are less than the taxes due, the file owes the IRS. The remaining of the form is used to put information on the filers, tax preparer, and others who may have access to the filer’s information.
All individuals are required to file their taxes for the previous by April 15th of the next year. If the April 15th falls on the weekend or a holiday, tax payers have until midnight of the next business day to file. If a filer cannot meet the tax deadline, that filer must request an extension. If an extension is not requested and it is determined that the filer owes taxes, the IRS would impose interests on the taxes due. After an individual’s taxes have been filed, the filer may submit corrections using Form 1040X. There is a time limit for when the corrections can be file.
If the correct will produce a refund, then the Form 1040X must be submitted within three years after the date the original tax was filed. If a refund had already had given to the filer, then the filer has up to two years after the refund was paid. As can be seen from this brief discussion, the Form 1040 is not a very simple form. This is why most Americans depend on tax preparation services to prepare and file their taxes. On the second page of every tax current instruction, the IRS Commissioner writes, “U. S. Supreme Court Justice Oliver Wendell Holmes, Jr. notably said ‘Taxes are what we pay for civilized society.
We should be proud that the vast majority of American citizens pay their taxes honestly and of their own free will. In an ever more complex and global world, we cannot take for granted this cornerstone principle of our democracy (Form 1040, 2008). If the tax code is not simplified, this “cornerstone principle of our democracy” may be eroded by loopholes and tax evasion. References Form 1040, 2008: Instructions. Department of the Treasury, Internal Revenue Service. This publication is available at: www. irs. gov/pub/irs-pdf/i1040. pdf.