Your guide to tax form 1040
Tax Form 1040 is the form most people use to file their taxes. However, it is not the easiest to understand. Form 1040 received an overhaul and redesign in 2018 designed to make it shorter and less confusing. But many experts say it didn’t work out that way.
“The IRS tried to shrink the form down to postcard size, but that required attaching additional schedules. And every year after that, the tax form gets expanded,” says Abby Eisenkraft, CEO of Choice Tax Solutions. Inc. in New York and an IRS registered agent.
In addition, changes in tax laws from year to year add to the complexity. “It’s really hard to keep all the changes in place,” adds Eisenkraft. “Because of all the changes, there are more forms to fill out, from reconciling stimulus payments received to advanced child tax credit payments.”
To help you navigate the 1040 tax form, here’s a guide to everything you need to know for the 2021 tax year and answers to common questions.
[READ: Tax Prep Checklist: Collect These Forms Before Filing Your Taxes.]
What is IRS Form 1040?
Form 1040 is a federal income tax form that most people use to report their tax information to the Internal Revenue Service. Taxpayers complete the form with their income and the deductions or tax credits to which they are entitled. The completed 1040 will also include the amount to be refunded or the amount of taxes due.
Other Types of 1040 Forms
There are several types of IRS 1040 forms, which may or may not apply to your situation:
— Form 1040-NR. This form may need to be completed by someone who is not a US citizen, US national and does not yet have a green card or has not met the IRS requirement known as substantial presence test and who is engaged in trade or business in the United States. (or is the representative of a deceased person who should have completed this form).
— Form 1040-ES. Freelancers and freelancers who pay estimated quarterly taxes use this form.
— Form 1040-V. This form is a payment voucher that taxpayers send to the IRS if they have a balance owing on the “amount you owe” line of Form 1040 or 1040-NR.
— Form 1040-X.If a taxpayer made a mistake on a previously filed 1040, they can make changes and include them on Form 1040-X.
— Form 1040-SR. Taxpayers aged 65 and over can use this form. It is optional but has larger characters and a table created to help taxpayers calculate their standard deduction.
Before filing a Form 1040, make sure you have your W-2 form, which contains your income information, handy. If you are self-employed or have had a hustle and bustle throughout the year, you may have a Form 1099 (or multiple 1099s) containing income information.
On the 1040, the first seven lines are all income-related questions. You will need to provide information such as interest, dividends, pensions, annuities, IRA distributions, and Social Security benefits.
What is the difference between 1040EZ, 1040A and 1040?
Forms 1040EZ and 1040A are no longer used. When the Tax Cuts and Jobs Act was signed into law in December 2017, it consolidated the 1040, 1040A, and 1040EZ into one redesigned Form 1040.
What is 1040-SR?
While the 1040EZ and 1040A are no more, the four-page Form 1040-SR is relatively new.
“It’s available for people age 65 or older, with an increased font size, but those with more complicated tax situations will need to use the normal Form 1040,” Eisenkraft says.
Who should complete IRS Form 1040?
Anyone filing taxes should file Form 1040. That said, according to Shann Chaudhry, a San Antonio business and estate attorney who often advises clients on tricky tax matters, “most taxpayers will only have ‘to file a Form 1040 without a schedule’. In other words, taxpayers with uncomplicated tax situations will likely file Form 1040.
Where can I get Form 1040 2021?
You can find Form 1040 2021 on the IRS website. Tax software, tax preparers, and even your local library may have the forms.
[See: 15 Tax Questions Answered.]
What you need to know about 1040 schedules
Your 1040 will come with many schedules, such as Schedule 1 and Schedule A, which are additional forms. Think of the 1040 as a math spreadsheet: you insert various numbers from a calendar (the 1040 form will tell you which calendar to use), and the totals from the calendars will go to your 1040 form.
There are a lot of people in the 1040, but a few areas you’ll want to pay special attention to, which may involve timings, include:
Charitable deductions. Typically, charitable contributions are recorded on Schedule A, which is used to claim itemized deductions. But many people are not detailing as it has become more financially advantageous for them to claim the standard deduction, which doubled in 2018. However, thanks to temporary expansion measures, those claiming the standard deduction can also claim a deduction. $300 (or $600 if married and filing jointly) to qualifying charities.
Cryptocurrency. A cryptocurrency question is near the top of the 2021 Form 1040: “At any time in 2021, did you receive, sell, trade, or otherwise dispose of a financial interest in any virtual currency?”
“The IRS has cracked down on the proper reporting of income from Bitcoin, Ethereum, and other digital currencies,” says Chaudhry, so it’s important to understand how cryptocurrency is taxed. For example, if you sold cryptocurrency in 2021, you will need to report any capital gain or loss.
Chaudhry also says that some brokerages and crypto exchanges are “sending (taxpayers) various flavors of 1099.”
For example, it says you might receive a Form 1099-K if you engage in high-volume transactions; a 1099-B if you show gains or losses from buying and selling cryptocurrency; or a 1099-MISC for other activities involving cryptocurrency.
[Read: What Tax Credits Do I Qualify For?]
Stimulus funds and early tax credits for children. If you received stimulus checks last year or advanced child tax credits, you don’t have to pay taxes on that money, but you’ll have to report it on your Form 1040. Eisenkraft says the most tax software will have a dunning reconciliation sheet, and the amount will eventually be reported on the 1040 line 30 form as part of the recovery refund credit.
It is important to make sure you include the exact amount received and not to guess. This year, Eisenkraft says, the IRS sent out a reminder that refunds will be delayed when reporting is incorrect. “They are sending notices to taxpayers reminding them of amounts received for the third stimulus package and child tax credit advance payments,” Eisenkraft said.
If you should have received stimulus money but didn’t, or if you received some but not all of your stimulus money, Eisenkraft points to line 30 of Form 1040 to request the salvage rebate credit.
Parents especially will want to take their time filling out their return, says Rob Burnette, financial advisor, tax preparer and CEO of Outlook Financial Center, a retirement planning company in Troy, Ohio.
Burnette points out that child tax credit advance payments should be reported on line 28 of Form 1040 and are calculated using Schedule 8812, “Credits for Eligible Children and Other Dependents.”