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IRS Form 1040: What It Is And How It Works

Let’s understand what IRS Form 1040 is and how it works if you want to have a stress-free tax filing experience.

Form 1040
If you are a businessperson, self-employed, or an independent contractor, there are a number of details you need to keep in mind about Form 1040.

In this article

Form 1040 is officially known as the ‘U.S. Individual Income Tax Return’. It is the standard form taxpayers use to file returns and is used to report your income to the IRS and determine how much tax you need to pay based on your earnings. It tells you if you owe additional tax to the IRS or whether you, the taxpayer, will receive a tax refund.  

How to fill out Form 1040 

While filing out Form 1040, you will need other documents like the W-2 and 1099 tax forms. You will also have to provide proof of earnings and deductions. When you have gathered all the necessary documents, you have three options to file Form 1040:

  • Doing it yourself via IRS Free File.
  • Doing it yourself with the help of any commercial tax software.
  • Hiring a paid tax preparer to do it for you. 

If you choose option one or two, you can download Form 1040 from the official IRS website. The form focuses on four areas:

  • It finds out who you are: This form will collect all your basic information such as name, address, and job details. It will also find out what tax-filing status you are going to opt for along with the number of tax dependents you have. 
  • It calculates your taxable income: If you have no idea how to calculate your tax, don’t worry. The form will do the job for you. It will calculate your overall tax liability and let you know exactly how much you owe the IRS. 
  • It calculates your tax liability: At the end of the Form 1040, you will write down the amount you have to pay as tax. Before filling that column, you may subtract the tax credits that you are eligible for. You can also subtract the tax money you’ve already paid when your employer withholds the tax from your salary.
  • It will determine how much you’ve already paid: Form 1040 will also help you calculate how much you’ve already paid and how much you have to pay. If you owe them money, then you will have to pay the rest this time or the next time. If you’ve paid more than what you owe, you will get a tax refund. There is a column that you can fill and let the IRS know where they can send you the money they owe you.

Information you need 

  • Your date of birth, your spouse’s date of birth, and the date of birth of any dependents as well
  • Social Security Number (yours, your spouse’s, and your dependent’s)
  • Proof and statements of the income you’ve earned (for example, W-2 and 1099s)
  • Your bank account details 
  • Interest statements or 1099-DIV forms for brokerage and bank dividends
  • Tax credits and tax deduction proof 
  • Previous tax return copies

Which Form 1040 schedules should you use? 

Everybody uses the regular Form 1040. However, there are three other schedules you may have to go through depending on what kind of a tax situation you have in hand and whether you need to deduct or claim a refund. People who do not have any issues like this and just directly want to file their taxes can simply fill out the regular Form 1040 and submit it.

Schedule 1: Additional income and adjustments to income 

Along with Form 1040, you will have to fill a Schedule 1 if you have any of the following:

  • If you are receiving alimony from your ex-spouse
  • If you receive rent money (Along with Form 1040, and Schedule 1, you will also have to file a Schedule E)
  • Income from your own business (You will also have to file a Schedule C along with Schedule 1 and Form 1040)
  • Income from your farm
  • Unemployment income 
  • Educator expenses 
  • The money you deduct from your health savings account 
  • Student loan interest 
  • Deductible moving expenses 
  • The money you deduct from retirement contributions 

Schedule 2: Additional taxes

You will have to file a Schedule 2 form if you owe the IRS any of the following:

  • Additional Medicare tax
  • If you are a freelancer or independent worker, then you will have to pay the self-employment tax 
  • Alternative minimum tax 
  • Premium tax credit repayment if you owe any excess amount to the IRS
  • Additional taxes on IRAs, retirement plans, or any other taxable accounts
  • Net investment income tax
  • If you are a first-time homebuyer credit, then you will have to fill out Schedule 2 as well 

Schedule 3: Additional credits and payments

File Schedule 3 if you want to claim any of the below-listed things:

  • Education credits
  • Foreign tax credit
  • Credit for child and dependent care expenses
  • Residential energy credit.
  • General business credit.  
  • Retirement savings contributions credit (the saver’s credit)

Other types of Form 1040

Any individual taxpayer will use the above form to fill out their tax details. However, there are other types of Form 1040 that people fill out in different scenarios. 

  • Form 1040-ES: If you are a freelancer or are self-employed, then you can use this form to calculate your earnings. They can be quarterly or yearly earnings. You need to fill out if you’ve chosen that you don’t want to withhold taxes on any unemployment or Social Security benefits you have received. Likewise, if you have chosen to withhold taxes on dividends and interests, then you will have to fill that out too.
  • Form 1040-NR: If you are a non-resident alien but you have a business in America or are involved in trading with any business in America, then you will need to fill out this form. 
  • Form 1040-SR: This is an updated version of Form 1040-NR. Those above the age of 65 who are non-residents but have businesses in America have to fill out this form. 
  • Form 1040-V: Even after paying your tax, if you find out that you still owe the IRS some money, then you will need to fill out Form 1040-V. You can also opt to directly mail them the balance amount. But most people pay the money online because it is more convenient.
  • Form 1040-X: Let’s say you made a mistake while filling out any of the forms. This Form 1040-X will amend those mistakes. It’s basically a revision form to correct any errors. 

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This page is purely informational. Line does not provide financial, legal or accounting advice. This article has been prepared for informational purposes only. It is not intended to provide financial, legal or accounting advice and should not be relied on for the same. Please consult your own financial, legal and accounting advisors before engaging in any transactions.

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