The 1040 tax form is the form most people use for filing taxes. It’s not the easiest to understand, though. Form 1040 received an overhaul and revamp in 2018 that was designed to make it shorter and less confusing. But many experts say it didn’t work out that way.
“The IRS tried to reduce the form to postcard size, but this required additional schedules to be attached. And every year after that, the tax form gets expanded,” says Abby Eisenkraft, CEO of Choice Tax Solutions Inc. in New York City and an IRS enrolled agent.
In addition, tax law changes from year to year add complexity. “It’s definitely hard to keep all of the changes straight,” Eisenkraft adds. “Due to all of the changes, there are more forms to complete, from reconciling stimulus payments received to the advanced child tax credit payments.”
To help navigate the 1040 tax form, here’s a guide to everything you should know for tax year 2021 and answers to common questions.
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 fill out the form with their income and any tax deductions or credits they’re eligible to claim. The completed 1040 will also include the amount to be refunded or the amount of taxes owed.
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 filled out by someone who is not a U.S. citizen, U.S. national and does not yet have a green card or has not met the IRS requirement known as the substantial presence test and is engaged in trade or business in the U.S. (or is the representative of a deceased person who would have had to fill out this form).
— Form 1040-ES. Self-employed individuals and freelancers who pay estimated quarterly taxes use this form.
— Form 1040-V. This form is a payment voucher taxpayers send to the IRS if they have a balance due 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 any changes and include them on Form 1040-X.
— Form 1040-SR. Taxpayers age 65 and older may use this form. It’s optional but has larger print and features a chart created to help taxpayers calculate their standard deduction.
Before you fill out a Form 1040, make sure you have your W-2 form, which contains your earnings information, on hand. If you’re a freelancer or had a side hustle throughout the year, you may have a Form 1099 (or multiple 1099s) containing earnings information.
On the 1040, the first seven lines are all income-related questions. You’ll 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?
The 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 a single and 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 use for those 65 or older, with an increased font size, but those with more complicated tax situations will have to use the regular Form 1040,” Eisenkraft says.
Who Should Fill Out IRS Form 1040?
Anyone who files taxes should fill out Form 1040. That said, according to Shann Chaudhry, a San Antonio business and estate attorney who often advises clients on knotty tax issues, “most taxpayers will only have to file a Form 1040 with no schedules.” In other words, taxpayers with uncomplicated tax situations will likely fill out Form 1040.
Where Can I Get the 2021 Form 1040?
You can find 2021 Form 1040 on the IRS website. Tax software programs, tax preparers and even your local library might have the forms.
[See: 15 Tax Questions Answered.]
What to Know About 1040 Schedules
Your 1040 will come with numerous schedules, such as Schedule 1 and Schedule A, which are additional forms. Think of the 1040 like a math worksheet: You plug in various numbers from a schedule (the Form 1040 will tell you which schedule to use), and the totals from the schedules will go on your Form 1040.
There is a lot packed into the 1040, but a few areas you’ll want to pay particular attention to, which may involve schedules, include:
Charitable deductions. Generally, charitable contributions go on Schedule A, which is used to claim itemized deductions. But many people don’t itemize since it became more financially advantageous for them to claim the standard deduction, which was doubled in 2018. However, thanks to temporary expansion measures, those who claim the standard deduction can also claim a limited deduction of $300 (or $600 if married filing jointly) to qualifying charities.
Cryptocurrency. A question about cryptocurrency sits near the top of the 2021 Form 1040: “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?”
“The IRS has been cracking down on proper reporting of income from Bitcoin, Ethereum and other digital currencies,” Chaudhry says, so it’s important to understand how cryptocurrency is taxed. For example, if you sold cryptocurrency in 2021, you’ll be expected to report any capital gain or loss.
Chaudhry also says some brokerages and crypto exchanges “are sending (taxpayers) various flavors of 1099s.”
For example, he says you might receive a 1099-K form if you engage in high-volume trading; a 1099-B if you show gains or losses from buying and selling cryptocurrency; or a 1099-MISC for other activities involving cryptocurrency.
Stimulus funds and advance child tax credits. If you received stimulus checks last year or advance child tax credits, you don’t have to pay taxes on that money, but you will need to report it on your 1040 form. Eisenkraft says most tax software will have a stimulus reconciliation sheet, and the amount ultimately carries to Form 1040 Line 30 as part of the recovery rebate credit.
It’s important to make sure you include the exact amount received and don’t hazard a guess. This year, Eisenkraft says, the IRS sent out a reminder that refunds will be delayed when the reporting is incorrect. “They are sending notices to taxpayers to remind them of the amounts received for the third stimulus and advance child tax credit payments,” Eisenkraft says.
If you should have received stimulus money but didn’t, or you received some but not all of your stimulus funds, Eisenkraft points to line 30 of Form 1040 to claim the recovery rebate credit.
Parents will especially want to take their time filing, says Rob Burnette, a financial advisor, tax preparer and the CEO of Outlook Financial Center, a retirement planning firm in Troy, Ohio.
Burnette points out that advance payments of the child tax credit must be reported on Line 28 of Form 1040 and are calculated using Schedule 8812, “Credits for Qualifying Children and Other Dependents.”
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Update 01/24/22: This story was previously published at an earlier date and has been updated with new information.