Which 1040 Do I Use?

Q. How do I know which 1040 I’m allowed to use? Does it really make a difference?

A. Yes! Each form has specific requirements that a taxpayer must meet in order to use it. IRS Tax Tip 2010-05 contains instructions on which form you should select.  Your options are:

1040EZ Requirements
Your taxable income must be below $100,000 and your earned interest below $1,500. You can only use the Single or Married Filing Jointly filing status. You must be under age 65 and not claim any dependents. You will not be claiming any of the special additional deductions for real estate taxes, motor vehicle purchase or disaster losses.

1040A Requirements
Your taxable income still must be below $100,000 to use this form. You want to claim the credits disallowed on the EZ form. You have capital gain distributions. You contributed to and IRA, paid student loan interest or higher ed tuition.

1040
Anyone can file with this form. However, if you have a simple tax situation, why go through the trouble of the long 2-page form if you don’t have to?

If you are confused about which form to file, you may wish to use the services of a professional tax preparer or CPA. Professionals are trained to help you understand your tax situation and can often make recommendations to help you improve your take home pay or lessen your tax bill in the upcoming year. Make sure you interview your tax preparer carefully. Not all of them are as prepared for any situation as you hope they will be.

New Homebuyer Credit Form

The IRS issued the new form 5405 for those wishing to claim the Homebuyers Tax Credit on their 2009 tax returns.  The new form is for those who have not yet claimed the credit using an amended tax return 1040-X.  Now required, an executed copy of form HUD-1.  This documentation is required simply to reduce the fraud that was occurring in this program during 2009.  When you visit your tax preparer, you will need to bring a copy of this document along with your other standard supporting paperwork.  Inclusion of this document in your tax return filing means you must file on paper and cannot use e-file.  Unfortunately, this also greatly increases the time before you can get your refund.

On a side note…

The IRS is requiring tax preparers who file more than 10 returns to file all of them electronically next year.  However, if Congress comes up with another idea that ultimately requires paper filing like this one, which directive am I to follow?  As a preparer, I am attempting to get all my clients on e-file.  Why is there no provision to attach scanned documentation to a return that is filed electronically?  We all have scanners and the reduction in paper and handling time would be significant if all supporting documentation could be included via pdf at the time of return submission.