Every year, most people must complete Form 1040 to file their taxes. But how much do you really understand this most fundamental of all personal income tax forms? It can mean the difference between claiming all money you're owed and missing out on some.
Page One - Taxpayer Information
The first page of the full Form 1040 comprise basically three parts: personal information, your income, and adjustments to that income.
The top half of page one is basic information about you and your spouse (if applicable). After the identification information, choose a filing status and enter the names and Social Security numbers of all dependents you're claiming—including any parents, grandparents or other family members for which you provide the majority of support (within certain guidelines).
Page One—Income and Adjusted Gross Income
After the personal information comes the section marked for income sources. The most common sources of income are wages (line 7), interest (line 8a), business income (line 12) and Social Security benefits (line 20a). These are added up to create your total income before adjustments.
What kind of adjustments are then made? The final section of page one contains items that may reduce your total income number. These include health savings account contributions, one-half of the self-employment tax, IRA contributions and student loan interest.
Once these adjustments have been made, the bottom line of page one shows your adjusted gross income (often called AGI).
Page Two—Tax and Credits
Once your adjusted gross income is determined, you subtract either the standard deduction or itemized deductions on line 40. Then, multiply the number of exemptions on page one by $3,950 (for 2014) and subtract that total as well. This creates your taxable income. Tax is figured on this amount and entered in line 44.
Tax credits are placed in two locations on page two:
- The first section, "Tax and Credits," is credits that reduce the amount of tax due. The total of these credits plus tax due cannot go below zero. Common credits in this category are education credits, retirement savings contribution credit and the child tax credit.
- The second section, "Payments," includes credits that can be refunded to the taxpayer even if he or she owes no tax. The credits in this section include the earned income tax credit, additional child tax credit and one type of education credit.
After subtracting all payments (withholding, estimated payments and tax credits), you are left either with an amount due on line 78 or a refund on line 76a.
Understanding the basics of personal income tax can help you know what types of documents are necessary and what might be beneficial in claiming credits or deductions. It can also help you protect yourself from fraud and missed items. However, even with such knowledge, it may still be best to seek out a professional tax preparer like UniqueTAXx AND ACCOUNTING or accountant to ensure the best outcome you can get.