Tax Returns: The Right Forms

What are the most commonly used tax forms?

Typically you're going to be looking at a form 1040 for the IRS. This tax form consists of 2 pages, and various schedules depending on your particular situation. There is a schedule A which is dealing with itemized deduction, if you're able to itemize. There is schedule B dealing with interest and dividends depending on how much interest and dividends, if any, you have. There is a schedule C if you're a self employed individual. A schedule D if you've sold stocks or something. On and on and on, if we tried to take all the tax forms that the IRS has available and you were going to file a tax return with every conceivable tax form the government's got we'd have a tax return about 6 inches thick. The likelihood you're going to use all those forms is slim to minus 3 so don't be afraid, the basic tax form is 1040, schedule A, schedule B, schedule C,D, E if you're dealing with rental property and the rest will pretty much fall in place, the instructions will tell you attach form such and such or attach form such and such.

Should I use the "1040EZ" form?

There is a 1040EZ which is a shortened version of the 1040. The 1040EZ is primarily designed for a single person, wage earner, that doesn't have any complexities to their tax return. You've got wages. You maybe have a little bit of interest income and it's a very simple form. The 1040EZ is a one-page form.

Should I use the "1040A" form?

The "14A" form is kind of the mid-stream. It's not the long form 14 and it's not the "EZ" short form. It's kind of in the middle. You make too much money or you're married and can't use the 14EZ, but you really don't need the full size 14 long form. The "14A" was designed to ask for specific data basically on a limited basis and it's more than EZ and less complex to work with.

Should I use the "1040" form?

When you're looking at doing your tax return and you're trying to consider what forms you need, the 1040 is the basic form. the 1040 is what they call the long form, and you can tell by looking at it, the 1040 is a long form. If you are a self employed person, or have rental property, then you're going to have to get into the long form 1040.

What is a tax "schedule"?

Well a tax schedule is something attached to the tax return. Bear in mind when we talk about an income tax return, we talk about the basic form 1040 attached to that are schedules. A basic form 1040 may be sufficient to file to complete your tax return. There are schedules that are necessary and a tax return will ask you to attach a schedule depending on the information that you're submitting. If you have a large amount of dividends and interest they will ask you to submit a schedule "B" because the schedule "B" details dividends and interest information. If you are itemizing your deductions -in other words taking deductions for medical, taxes, interest, contributions- then you will have to attach a schedule "A". A schedule could be as simple as a plain piece of paper attached to your tax return explaining something on the face of the tax return.

What is "Schedule A"?

All right. Now, we're doing our tax return, and we're looking at schedules. And the first one we pick up is Schedule A. Who uses a schedule A? Individuals who are filing a tax return that are itemizing their deductions. Now, when I say "itemize," the Schedule A talks about itemized deductions. It starts off with medical expenses, it continues with interest, taxes, contributions, and then miscellaneous deductions that don't fit in those previous items. If you're able to itemize your deductions, you're going to be using Schedule A.

What is "Schedule B"?

Next in line, Schedule B. A Schedule B is used by people who have interest and dividend income beyond a certain amount, about $400. When I'm doing tax returns for clients, we put in almost anything on a Schedule B. If you have interest from bank accounts, it's going to go on the Schedule B. If you have dividends from stocks and bonds, that also goes on the Schedule B. And Schedule B would be attached to the back of the return also.

What is "Schedule C"?

A Schedule C is used by people who are self-employed. Self-employed means you're running your own business, you have income coming in from the business and you have operating expenses of your business. All of that is reported on the Schedule C.

What is "Schedule SE"?

When you complete the Schedule C, if it comes up with a profit at the bottom line you're going to need another Schedule and that's called a Schedule SE. A Schedule SE is for self-employed individuals to pay over social security taxes to the IRS. And you'll need to attach Schedule SE in addition to the Schedule C.

What is "Schedule D"?

A Schedule D is for Disposition of Assets. What do we mean by that? If you sell something, like stocks or bonds, then you need to report it on a Schedule D. In fact, anything that you sell, whether it be collectibles, art work, real estate, stocks or bonds are all reported on the Schedule D because you are disposing of assets and you need to tell the government.

What is "Schedule E"?

Schedule E is a two-sided form. There's a Schedule E and there's a Schedule E-2. The Schedule E is used if you have rental property. If you own a piece of property and you're renting it, whether it be real estate or even a piece of equipment, that's reported on the Schedule E, where you report the rental income and the various expenses of the rental property. On the other side, the Schedule E-2 is used if you have investments and partnerships. If you're dealing with schedule E-2 where you report partnerships, trusts, some Chapter S-Corporations, you are probably getting into a much more complex tax return and more than likely now is the time that you need to go out and seek the help of a professional.

What is "Schedule F"?

There's one more in the letter series that's a Schedule F. F is for farmers, interesting how the IRS came up with that stuff isn't it? If you're a farmer and you have farm activity then you'll be using a Schedule F. Schedule F is similar to a schedule C but it is specifically designed for farm people.

What do those boxes on my W-2 mean?

You're sitting down to do your tax return, you pick up the W-2, and you look at it, and there's numbers all over the place. All of them in separate little boxes. Conceivably, when you're looking at the W-2, the box of numbers that you should be most familiar with is the one that says "taxable wages". The next box that you're going to see on your W-2 is "federal withholding taxes". That's the taxes that were taken out of your pay check to prepay the taxes to the IRS. The next box that you're going to see on the W-2 is social security wages, and the box next to that on the W-2 is the tax, social security tax. You're going to see another box on the W-2 that's going to say Medicare wages, and next to that would be the taxes that you paid for Medicare. Those are the basic ones that are going to be on everybody's W-2 tax return, other than the big box that's got your name and address and social security number, and another big box that's going to have your employer's address and ID number. Basically, that's what you're going to see on your W-2. Every W-2 has those boxes on it. They may not necessarily be in the same order on every W-2, but they're always there. There's other boxes that are going to show up on the W-2, and they're specific boxes for specific purposes. There's a box number 12 on the W-2 that's got letters in it. That's going to indicate if you had a 41K program, if you had something special at your work, a medical plan, various different things. In that box 12 when you see the letter code next to the number, and you wonder, "What the heck does that letter mean?" If you look on the back of your W-2, they're going to have instructions there that tell you what all of these letters stand for. They're specific to certain things, they may not have any bearing on completing your tax return. They're primarily information for you, and information for your employer to transmit to you.

What are the different types of "1099s"?

Now you're looking at the paperwork to do your tax return and you pick up this form and it's called a 199 form. You'll find the 199 form has a number of different letters after it. Could be a 199 I N T, that means interest and that's what the bank will give you telling how much interest you earned on your bank account. You have a 199 D I V, dividends, tells you how many dividends you earned or how much money you made in dividends. You may see something called a 199 and various little boxes on one that's called a 199 N E C, Non Employee Compensation. That's basically what you're going to get if you're an independent contractor and the various people will to send you that telling you how much money they paid you during the year. There's a whole slug of different 199s specifically designed for different information, some will report rent, some will report dividends, some will reports things specific to a particular industry. The 199s are strictly given to you, a taxpayer, for information in preparing your tax return. The 199 doesn't have to be filed with your tax return. The government has a copy of it. They got it from the person who sent it to you so beware, you better report it on your tax return.

What forms do I need if I own stocks, bonds or mutual funds?

If you own stocks, bonds, mutual funds, beside the basic 1040, you're probably going to need the schedule B, which is where you report the dividends in interest income. You may also need the schedule D, which is used to report the sale of stock. Schedules B and D are the two forms that you're going to need in addition to the basic 1040 form.

What forms do I need if I'm self-employed?

Self-employment requires a number of forms. You will require a Schedule C, the form where you report the income and the expenses of your business. You will also require the Schedule SE form, which allows you to report the profit on your business and determine the amount of Social Security and Medicare taxes that you, as a self-employed individual, have to pay over to the Social Security Administration through the Internal Revenue Service as their collection agency. Those are the two primary forms you are going to need as a self-employed individual.

What forms do I need if I have rental property?

If you have rental property, you're going to need to use the Schedule E. The Schedule E is used to report the rental income and the rental expenses.

What forms do I need if I have an IRA?

There are no specific forms to the IRA. On the bottom of the form 14 it shows a spot called adjustments to income. That's where you would put down the amount of money that you put into your IRA account and it's used in calculating your income subject to tax. There is no specific form for the IRA, although you may receive a form in the mail that looks very ominous. It's form number 5498. The 5498 is sent out by the banks; by the people that are holding your IRA funds every year, to tell you what's in your IRA account at the end of the year. It's strictly an information return and has no bearing on preparing your tax return.

What forms do I need if I'm a homeowner?

Besides the basic 1040 form, you're probably going to need a Schedule A because that's where you're going to be itemizing your expenses and some of the expenses that you itemize as a homeowner are the real estate taxes that you pay on the house. You will also have interest on the home mortgage; that will show up on that schedule and be reported on the Schedule A.