Understanding the 1040 Federal Income Tax Form

Basics of the 1040

The IRS Form 1040, as with the 1040EZ and the 1040A, is broken down into sections:

Label Section
The first section you come to at the top of the page is the Label section. The label on your tax return contains several very important items such as the correct spelling of your full name, and that of your spouse’s if you are married. As well as your correct mailing address and social security numbers. Also, the box for electing to contribute three dollars to the Presidential Election Campaign Fund is located at the bottom of this section.

Filing Status
Your filing status is the next section. There are five filing statuses at this time and they are Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualified Widow/Widower. Make sure that you find out the requirements for each filing status before you choose how to file.

Exemptions are the next section and here is where people will tend to get into trouble. Your personal exemption and that of your spouse, if you have one, is located here as well as your dependent exemptions. The laws defining dependants are changing in the near future, so you might want to check into this matter before listing someone other than the biological children that live with you. Foster children and other relatives can at times be claimed on your return, if you follow the guidelines for such. Make sure that you qualify before you list these individuals on your return.

The next section is Income. Read through this section carefully. All worldwide income is reportable and there are some incomes that require you to fill out additional forms. For example, self-employment income will need to be filled out on a Schedule C and then the total reported on the front page of the 1040. Taxable interest, capital gains, retirement allowances and any other types of income are all listed and totaled here.

Below the Income section is the Adjusted Gross Income section. Here you will find adjustments to your income. It is important that you do your research well when it comes to adjustments. This section is where you will begin determining your tax liability and your ability to claim certain credits. These adjustments include retirement contributions, tuition and fees deductions, and certain business expenses. There are also new adjustments in the future, so update your tax knowledge often. This is the last section on the front page of the 1040.

Tax and Credits
Beginning on the back page of the 1040 you have the tax and credits section. Here is where you will subtract your standard or itemized deductions and exemptions in order to find out what your taxable income will be. Once you have your taxable income you will be able to look up your tax liability. Then you move on to the credits.

Credits will only bring your tax liability down to zero, that is why some of the credits are limited depending on what your total tax is. Credits in this section include the adoption credit, dependant care expenses credit, educational credits and for a few years only, the saver’s credit. These credits will be subtracted from your tax liability.

Below the credits is the Other Taxes section. This is where you would put the total of your self-employment taxes, taxes on early withdrawal of savings, advance earned income payments and household employment taxes. This is also where you would report social security and Medicare taxes on unreported tip income.

Next you have the Payments section. Here is where the federal income tax withheld is located and any estimated taxes that were paid during the year. The earned income credit and additional child tax credit are here also as they are refundable credits, not just tax lowering credits.

Refund and Amount you Owe
Lastly there is the part most people either eagerly await or dread – the Refund and Amount You Owe sections. After subtracting your total taxes from your total payments, you of course will either have a refund located in the Refund section or a balance due located in the Amount You Owe section. Located in the Refund section are also the elections to have your refund directly deposited into a bank account and the election to have the IRS hold onto your refund for next year.

At the bottom of this page is the signature requirements. This is a very important section as your tax return is a legal document and your signature denotes that you have filed it correctly to the best of your knowledge. Even if you have a third party complete your return for you, you are still the legal responsible party when it comes to your taxes. Once you sign this document, you are accepting the responsibility of what is on it. Remember to check any documents that you have prepared by a third party before signing and delivering them to the IRS.

Categories Taxes

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