The IRS (Internal Revenue Service) offers taxpayers looking to file for their individual tax returns with three different options: Form 1040A, Form 1040 and Form 1040ES. Form 1040EZ is for simple and easy tax situations, and Form 1040 is rather for more intricate tax scenarios.
Form 1040EZ is a simple form to fill out and complete, and is ideally suited for taxpayers who meet certain conditions. Taxpayers can file as individual single parties or jointly as married parties. Filers should not have any dependants, and must be below the age of 65. Taxable income must also be below $100,000, and the taxpayer must not be currently in Chapter 11 bankruptcy. Filers must also not owe taxes of the employment of domestic employees like maids. Perhaps one of the biggest hurdles of using Form 1040EZ is that filers can’t claim on any income adjustments, like deductions for retirement contributions, study loan interest deductions or any other form of credit other than earned income credit.
Form 1040 is probably the most complicated and intricate of forms for individual people filing their tax returns, but offers taxpayers with a variety of options for claiming credits and deductions. Self-employed taxpayers, like consultants or freelancers are only eligible for filing for Form 1040. Other tax situations require that taxpayers use Form 1040. These include matters such as having adjustments from a partnership, S corporation or from Alternative Minimum Tax. If your employer didn’t withhold any Medicare or Social Security taxes, or if you owe other taxes for using a household employee. Any taxpayers with adjusted gross incomes of more than $100,000 or those who underreported tips are required to file using Form 1040.
Filing with Form 1040EZ and not Form 1040 may be much easier and simpler, but may cause taxpayers to miss put important tax deductions and credits. A thumb rule to remember, the longer a tax form, the more tax breaks that are available.
What Tax Return Form Can I Use?
Many people simply hate the idea of filing out tax forms, just as much as the detest the idea of forking over dough to Uncle Sam. This is why it is important to use the easiest and simplest tax return you can, more especially if you’ll filling out the forms by hand.
You need to choose carefully. Although personal income tax forms —1040EZ, 1040A and 1040 are designed to help you pay the right amount of money to the IRS, the specific differences in these tax return forms can cost you a lot more if you fail to pay attention to their details.
Form EZ is the simplest and shortest form, the 1040A is somewhat more complicated, and the lengthy 1040 has greater detail and potentially more difficult. However, even if your tax life is pretty straightforward and simple, it certainly may be worthwhile for you to scrutinize the other forms. Why? Ideally, the longer the tax form, the bigger the opportunities for tax breaks:
How Form 1040EZ Could Cost You
Let’s look at the case of Frank D. Taxpayer Frank just completed his college studies in the previous year and landed a full-time job earning $35,000. He’s a single chap, renting a bachelor apartment and doesn’t have any investment incomes. This is the perfect Form 1040 EZ filer, right? Quite sure if you are Uncle Sam, because Frank will overpay his taxes using this short form.
Why so? This is because Form 1040EZ doesn’t really offer Frank some crucial tax breaks like those found on the other two forms.
Frank has a study loan. By filing Form 1040A, he can deduct from his income $2,500 he paid on the debt. He certainly cannot do that using the shortest of forms available. Frank has also began planning for retirement by depositing $3,000 into a traditional IRA. Since his employer does not provide a company retirement plan, Frank’s deductible IRA contribution can reduce his taxable even more, but only if he files using the longer form.
When Fran chooses Form 1040A over Form EZ, he suddenly owes tax on $29,500 and not on his fill income of $35,000. And he is placed into a lower tax bracket, the 15% one instead of the 25% tier—even well before he reduces taxable income by using the personal exemption, which every taxpayer is entitled to and the standard deduction amount.
This means that, choosing Form 1040A over Form1040EZ will have saved Frank a great deal amount of money. There are even better tax-saving opportunities for individuals that are found on the longer Form1040. They may not be applicable to Frank’s case, but still have the potential to cut the tax bill—provided you carefully take time to go over each form.
Form 1040EZ is ideally one of the simplest IRS forms to complete. And when IRS is doubled, the earning limit on tax filers who’ve used it some years before, Form1040EZ is now easily available to more taxpayers. You are eligible for filing for Form 1040EZ returns if you:
- You file as a single individual party or as jointly married.
- You are below the age of 65; and your spouse also meets the set age requirements if you are filing for joint returns. If you or your partner’s 65th birthday is January 1, then for the sake of filing purposes, you are regarded to have turned 65 in the previous year and for this reason you can’t file for the form.
- You and or your spouse, if filing jointly were not medically blind during the previous tax year.
- You have an interest income of less than $1,500.
- You don’t have any dependents .
- Your individual income, or combined incomes if you are joint filers, is below $100,000.