There are only two sure things in life: death and taxes. And while no one knows when the Grim Reaper should arrive, everyone knows that April 15 is right around the corner. Unfortunately, taxes aren’t as cut and dried as they may seem, especially if you decide to save some cash by doing them yourself. By learning everything there is to know about tax forms, you can save time and hopefully decide what you’re going to do with your refund instead of worrying about what you owe.
Image via Flickr by John-Morgan
As the suffix of the 1040-EZ would imply, this tax form is the easiest way to file for many individuals. However, you must meet certain criteria to file this form:
- Your income or combined income with your spouse is less than $100,000
- You have no dependents
- You’re younger than 65
- You file as a single person or jointly as a married couple
- You have less than $1,500 in interest income
- You are not legally blind
The most attractive feature of this tax form is that it’s only one page, and you only need your W-2 to file. It’s quick, easy, and painless, although you can only take the Earned Income Tax Credit, which may hinder your ability to claim other deductions.
If you believe you may save some cash through deductions, Form 1040 is the way to go. Although this is the longest of tax filing forms, it can save you money thanks to a dozen deductions that reduce your taxable, or gross, income. This form is particularly handy for filers who earn more than $100,000, thanks to popular tax credits such as mortgage interest, moving expenses, withdrawal from a Health Savings Account, or charitable donations.
In other situations, you must file a Form 1040. This includes:
- Income from a business, farm, S-Corporation, rental, trust, or partnership
- Tax treaty benefits
- If you sold mutual funds, stocks, bonds, or property, regardless of whether it was a gain or a loss
- Early distributions of a retirement fund
- Taxes on tips
- Household employment taxes
If you’re ever in doubt about which 1040 to file, always opt for the long form as you won’t omit any important information regarding your income, deductions, or taxes.
A W-2 is the form filed by an employer and received by an employee that allows him or her to fill out a Form 1040 of any variety. This form lists the total monetary compensation of an employee, including wages, bonuses, and tips. It also lists the taxable income for Social Security, Medicare, and federal taxes, as well as the amount withheld over the tax year. Boxes 15 through 20 also detail both state and local taxes if your place of residence requires it.
If you receive a W-2, it will have several perforated copies. When you file by mail, remember to include one of these with your tax forms. You should also retain at least one of these copies for your records.
No one loves paying taxes, but if you know just what to file and what to look for, your taxes shouldn’t cause you much of a hassle.