taxes

How do I: Know which tax form I should complete?

Topic: Taxes
Who is affected: Consumers at every life stage
DEGREE OF DIFFICULTY: Easy
What you'll need: Tax documents

What you need to know

Here's a rundown of the three basic tax return forms.

Form 1040EZ -- The simplest form, the EZ is for taxpayers who:

  • Are single or married filing jointly.
  • Are younger than 65.
  • Aren't legally blind.
  • Have no dependents.
  • Make less than $1,500 on interest.
  • Make less than $100,000.

Filers must take the standard deduction and can claim only the earned income tax credit, or EITC. The EZ may be simple, but most will end up paying too much.

Good for: Students, singles, childless married couples.

Form 1040A -- Middle-of-the-road in difficulty, the 1040A is for:

  • All filing statuses (single, married filing jointly, etc.).
  • Those making less than $100,000.
  • Those who don't itemize deductions.

Filers of the 1040A also must take the standard deduction, but can claim several tax credits -- child, education, elderly or disabled, and retirement savings (IRA) -- they couldn't get with an EZ.

Good for: Families with kids, student loan holders, the elderly and disabled.

Form 1040 -- The most complex but also the most versatile, the 1040 is for:

  • All filing statuses.
  • Make more than $100,000.
  • The self-employed.
  • Those with capital gains (money from the sale of property, other investments).

With the 1040, expect more work, but also more deductions. Many credits are available only on the 1040, and if they total more than the standard deduction, you'll be ahead.

Good for: Investors, small business owners, families with special tax circumstances.

Step-by-step
Three main factors can help you decide which form to use:
1.Income -- It may determine which form to use.
2.Deductions -- Big bills? The 1040 might be for you.
3.Using a professional tax preparer -- You might want to choose a more complex, but higher reward, form.

 

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