April 15th Alert: Understand Your Tax Forms

taxesAround this time every April, anxiety tends to peak for many Americans. Surprisingly, the vast majority of taxpayers wait until dangerously close to midnight on April 15th to file. One of the biggest contributors to this procrastination, is confusion about which form to file. It definitely eases the pain to have a tax preparer do the work for you or to use a software program to navigate the process. Yet, not everyone can spare the extra change (especially if you owe).

The Internal Revenue Service (IRS) website is the best and most reliable place to obtain all of the tax related information you need, including forms. Publication 17 is the best resource provided by the IRS to assist tax preps. The publication summarizes important tax changes that took effect within the last year and discusses these changes in detail.

Here is a summary of the forms you will most likely need and what each form reports:

  1. 1040 – These are the most commonly used taxes forms. The individual income tax return form 1040 is standard; it is used across the board whether you make $20k or $150k in annual income. Form 1040 is used to report wages, salaries, filing status, exemptions and itemized deductions.
  2. 1040A – This form is similar to 1040 except it does not report items such as alimony received, business income, rental real estate, royalty income and other taxes such as unreported social security and Medicare tax.
  3. 1040EZ – This is the most basic tax return; it is primarily for single and joint filers with zero dependents.
  4. W-2 – These tax forms are the ones most of us receive from our employers and the W-2 reports wages, tips, social security, Medicare, withheld income taxes, severance pay and other types of compensation. If you were lucky and won the lottery or hit the jackpot at the casino, any win over $600 will be reported on the W-2G form from the place that awarded the funds.
  5. 1099-MISC – This form reports other types of income such as rent or royalty payments of $10 or more. It also reports prizes and awards from TV and radio of $600 or more. You can use this form to report payments made to physicians or other types of medically related expenses. The 1099-MISC is also the form used for income from contract or freelance work. Regular employees do not file this form since their employer withholds taxes for them. Independent contractors are fully responsible doing this by themselves. This is the difference between employees and independent contractors. If you made any charitable donations throughout the year, you should receive a statement from the charity noting the name of charity, date and amount donated.
  6. 1099-DIV – This form is used by companies paying out dividends who will report dividend and distributions such as capital gain distributions or non-taxable distribution.
  7. 1099-INT – This form is provided by your financial institution.

Commonly used schedules which are attached to tax returns are:

Schedules A and B (reports itemized deductions, interest and ordinary dividends), Schedule C (reports profit and loss from a business), Schedule D (reports capital gains and losses) and Form 2441 (for child and dependent care expenses).

Now that you understand each form with more clarity, it’s time to tackle your tax return. The clock is ticking, but now you’re better prepared. What a relief!