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Once you determine that you must file a tax return, the next step is figuring out which form is right for you. The three individual tax returns are:
If your tax life isn’t very complicated, then you’ll probably want to file the 1040EZ, the simplest of individual forms. But the tradeoff in ease is a limit on how you can reduce your taxes.
Use of the one-page 1040EZ is restricted to taxpayers who earn below a certain amount and who don’t have much interest income. You can’t itemize deductions. You can take advantage of only one tax credit: the earned income credit.
And only single or married-filing-jointly taxpayers can file an EZ.
If you file the 1040A form, your taxes are a bit more detailed, but you have more chances to reduce your taxes.
You still will face income restrictions and you still won’t be allowed to itemize deductions. But on the 1040A you can subtract contributions to an individual retirement account and interest paid on student loans.
You also get more tax-credit options with the 1040A. In addition to the earned income credit, you might be eligible for various child- and dependent-care, adoption and education credits.
Form 1040 is the most complicated individual tax return, but it also offers you the most chances to reduce your taxes.
In addition to subtracting contributions to your IRA and student loan interest on Form 1040, you get to deduct alimony paid, contributions to medical savings accounts and moving expenses. If you’re self-employed, you also can subtract from your total income part of any self-employment taxes and health insurance you paid.
The 1040 also is the only filing method that allows you to itemize deductions in order to reach a lower taxable income amount. And you can take some tax credits that are not available on the other two forms.
You must file the long 1040 if you have certain types of income, such as capital gains or self-employment earnings, or if you have household help and pay employment taxes for those folks.
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Don’t necessarily take the IRS’s word on forms
Generally, if you still file by sending in paper forms, the next year you will receive tax forms from the IRS based on the last return you filed. But just because you got that particular filing packet doesn’t mean you have to use those forms this year to file your taxes.
Be sure to review your tax situation and file the forms that are best suited to your current circumstances. Forms are available at most post offices and libraries or can be downloaded from the IRS Web site.