This article will help answer some of the common questions asked by an individual regarding the Form 1040. We will discuss the Schedules A, B, C, D and more in subsequent articles so as to be able to address specific issues with those forms. Let’s begin with Filing Status.
1. Filing Status
The filing status refers to the state of an individual at the end of the tax year. (December 31st) A divorcing couple who begins proceedings in October and doesn’t complete the divorce until the following year needs to come together one last time to file as Married.
a. Single – pretty self explanatory, not married at the end of the year.
b. Married filing Jointly – When both Husband and Wife’s income are included in the same return. Again, what was your status as of December 31st of the tax year in question.
c. Married filing Separately – 90% of the time it is more advantageous to file jointly, because a married couple filing separately lose many allowed deductions to those filing Jointly. (Earned Income Credit, etc) It also leads to complications because if you are filing separately and your spouse itemizes their return, then you too have to itemize as well, and usually there is nothing left to itemize. You can’t claim the same mortgage interest deduction twice. Ask your tax professional if you should have any doubts.
d. Head of Household – This is often confused with MFS. Two married persons cannot claim the HOH status and yet year after year the husband takes two children the wife the other two and they cheat the government and the honest taxpayers to get the ‘most bang for their buck’. In the same vein, if you are living in a household where you are not providing more than half of the household expenses, you cannot claim HOH either. I personally know of four individuals in jail for doing this repeatedly and they will lose all claim to EIC for ten years. A further complication of the HOH status is the “Qualifying Person” Most of the time it is your child(ren) who are going to qualify you for HOH status. Sometimes it is a blood relative, parent, sibling, etc. The rules for this are complicated enough to warrant a separate article.
e. Qualifying Widow(er) with dependent child – A surviving spouse may file as a qualifying widow(er) for the two consecutive tax years following the death of their spouse. Again there are rules and qualifications for this that would warrant a separate article.
Box 6a – Yes you can claim yourself as an exemption. If however, you are a college student under age 24, very seldom is there a benefit to you filing your own exemption unless you are working full time and attending college full time as well. In this case, you would not claim yourself.
Box 6b – For your spouse can be an exemption but he/she cannot be a dependent.
Box 6c – For children or dependents that live with you. If he/she qualifies for the child tax credit the box in column 4 would be checked.
Box 6d – Total number of exemptions claimed.
Note – If during the year you were claiming zero on your W4 form, more taxes will be taken out of your checks and you will likely receive a refund. But you have the legal right to claim as many exemptions during the year as you like so the government won’t take out as much, but keep in mind that you may end up owing money at the end of the year.
Box 7 – Wages, Salaries and Tips – this would be the grand total of all amounts in all W-2’s received. (box 2 on the W2)
Box 8a – Taxable Interest – any earned interest from savings, checking, or other accounts. You should receive a 1099INT with these amounts. Many people ignore this part of the form because the amounts are so small. The safest course is to include ALL interest earned here.
Box 8b – Tax Exempt Interest – any interest earned on bonds or any other financial vehicle where the interest payments are exempt from federal taxes. Most individuals do not have these types of investments to worry about this box.
Box 9a&b – If you are an investor you will receive a 1099DIV which will separate the Ordinary from the Qualified Dividends. This would require the use of a Schedule B so these distinctions will be discussed in that article.
Box 10 – Taxable Refunds – you got a refund from your state income taxes last year! Wait, no, the feds want their slice of that action, so that’s taxable.
Box 11 – Alimony – the wise divorcing man agrees to pay alimony in lieu of child support, because for him it is deductible, for her it is taxable. Plus, it ends when she remarries.
Box 12 – Business Income – here you would put the bottom line figure (profit or loss) from the Schedule C for your business. You guessed it, that’s another article.
Box 13 – Capital Gain – the sale of stock, a house, etc where there is a substantial gain would go here. This requires a Schedule D.
Box 14 – Other gains or losses – This is the IRS’s miscellaneous category in case they forgot one. Any other gain is taxed here, any other loss is deducted from the Adjusted Gross Income.
Box 15a&b – IRA distributions – for those in tough economic times who raided their IRA’s prematurely, there are penalties and taxes that must be paid. This will be on the 1099 you receive from the company handling your retirement account.
Box 16a&b – Pensions & Annuities – same here. Sometimes the nontaxable amounts here are higher which is always a good thing. That depends on the type of annuity and the circumstances behind the withdrawal.
Box 17 – Rental Real Estate (Schedule E) Royalties, Partnerships, S-Corps (1120, 1065 and 1120S) This is where income from these endeavors flows through to the personal return. Trusts (1041) These will be more extensively discussed in a future article.
Box 18 – Farm Income Or Loss 0 (Schedule F)
Box 19 – Unemployment – If you don’t arrange with your state to deduct federal taxes from your unemployment check, you may be sorry later.
Box 20a&b – Social Security Benefits – yes, some SS benefits are taxable, the total amount goes in box a and the taxable amount in box b.
Box 21 – Other Income – another IRS miscellaneous category. Lottery winnings, gambling winnings etc would go here.
Box 22 – All amounts totaled equal your total income.
Adjusted Gross Income
These figures reduce the amount of your AGI and help reduce taxable liability.
Box 23 – Educator Expenses – Up to $250 of expenses for full time teachers for the money they invest in school supplies during the year.
Box 24 – (Form 2106) Certain business Expenses of … – The 2106 is a form used by people who will have expenses related to their employment, who receive a W-2, and these expenses are not reimbursed. This includes mileage, meals, etc. Whether the person using this box is a reservist, performing artist, etc really isn’t important it’s just specified here for the benefit of those individuals.
Box 25 – HSA – Health Savings Account – A health savings account can be a deduction, in lieu of an insurance plan, it is an account that earns interest as the money is withdrawn only for health related expenses. A Form 8889 is needed to calculate the amount to add here and the form needs to be included in a return that is mailed.
Box 26 – Moving Expenses – There are a number of rules about the deductibility of moving expenses, the major one of which is the distance of the move. Typically, in order for moving expenses to be deductible, your current job must be at least 50 miles farther away from your old residence than your former job. These expenses are directly related to gaining employment at a new job and cannot be reimbursed by your new employer. A Form 3903 is needed to calculate this amount and will include packing, moving, and lodging as you travel, but not meals so live lavishly for a night at the five star hotel but pack some groceries for the trip.
Box 27 – One Half of Self Employment Tax – Since someone who owns their own business ends up paying both parts of the social security and medicare taxes during the year, it is here they can deduct that amount. Usually a Schedule C will be needed for this information and a Schedule SE.
Box 28 – SEP – Being a Self employed individual makes contributions to retirement accounts harder as there is no ‘match’ from the employer. Here a Self Employed individual may deduct contributions to his or her SEP plan. Box 29 is the same for any healthcare deductions a self employed individual would make.
Box 30 – Penalty on Early Withdrawal of Savings – If you withdraw money from your retirement plan as a self employed individual and it’s not your allotted time to be able to do so, the IRS will add a penalty to your withdrawal. Speak to a good financial planner to help avoid this from happening.
Box 31a – Alimony Paid – Here is the silver lining to the cloud of divorce, your paid alimony is deductible. (Child support is not) Box 31b – Recipients’ SSN – and since it is deductible for YOU, it is taxable for the recipient.
Box 32 – IRA deduction – for a traditional IRA self employed or not, you can deduct a certain amount which has the nasty habit of changing from year to year, so ask your tax professional about this.
Box 33 – Student Loan Interest – Those 9% loans are a hassle, good news is that the interest is deductible, IF you pay it. You will receive a 1099 INT from the student loan guarantor with this information on it.
Box 34 – Tuition and Fees Deduction – If you or a dependent is a full time student and pays tuition throughout the year the deduction could be written off here, OR as a credit via the Hope Credit or Lifetime Credit, choose which one is more beneficial to you.
Box 35 – Domestic production activities – Rarely used but it’s for the production activities of Corp and S Corp companies, form 8903 is used to figure out the bottom line number to place here. Mostly used for manufacturing companies, etc. Box 36 is the total of lines 23 – 31a and 32-35.
Box 37 & 38 – This total is your Adjusted Gross Income.
Tax & Credits
Box 39 a – c is requesting more information about age, blindness etc. It’s pretty self explanatory.
Box 40 – Requires the filing of itemized deductions or a Schedule A where the mortgage interest, taxes paid, etc adds up. If your itemized deductions don’t exceed the standard deduction, you are stuck with the standard deduction. The itemized deductions are subtracted from your AGI.
Box 43 – After the deductions are subtracted this box will have your taxable income.
Box 44 – Using the tax tables you can use your taxable income to calculate taxes owed.
Box 45 – The Alternative Minimum Tax will become more of a pain to more people.
Box 47 – Taxpayers who because of residence must pay foreign taxes are given a break here in that they can deduct those taxes paid. Must use 1116 form to report it.
Box 48 – Day care expenses paid to help the parent work are deductible and should be put here. The Form 2441 will require information about the day care provider including EIN number or the Social Security number for individuals. They will then have to claim the same amount as income.
Box 49 – Credits for Elderly and Disabled use Schedule R
Box 50 – Here is the alternate place to put credits for tuition paid as discussed from the previous box 34.
Box 51 – Contributions to the Traditional IRA are put here.
Box 52 – The child tax credit is a gimme to those families who have more than one child. This is in addition to the exemption for the dependent.
Box 53&54 – Credits from Form 8396 (Mortgage interest from Government issued Mortgages.) Form 8839 (Qualified Adoption Expenses) Form 5695 (Residential Energy Efficient Property Credits) Form 3800 (General Business Credit) and Form 8801 (Credit for Prior Year Minimum Tax)
Box 55 – These are your total credits which are subtracted from your tax owed.
Box 57 – Self Employment Tax – the half of your social security and medicare usually paid by an employer when you are self employed must be paid by you. Here is where that goes.
Box 58 – Unreported SS and Medicare tax from form 4137 (tip income) and form 8919 (uncollected SS and Medicare) Those individuals that get tip income must report that income if it isn’t reported on the W-2.
Box 59 – Additional taxes on IRA’s or other retirement plans. Some plans have benefits that are taxable consult your tax professional for more information.
Box 60a – AEIC – these are the Advanced Earned Income Credits paid throughout the year instead of at the end of the year.
Box 60b – Household employment taxes – If you employ a nanny or maid who works in your home a Schedule H must be filed so that you can account for the payroll taxes you should be paying your employees. Guaranteed to ruin any chances you had at a government appointment if you don’t do this right.
Box 61 – Total tax owed.
Box 62 – All taxes withheld on both W-2’s and 1099’s are put here.
Box 63 – Previous years estimated taxes paid using the 1040ES forms each quarter.
Box 64a – Earned income credit based on income and number of children. 64b – Combat pay is not taxable and goes here.
Box 65 – Applies for those individuals with a Railroad Retirement plan. Includes excess SS tax withheld from the benefits.
Box 66 – Additional Child Tax Credit – Where the child tax credit reduces your tax owed, the Additional Child tax credit is a refundable tax credit. So for example if you owed 1000 in taxes the child tax credit of 1000 would reduce it to zero, but if you owed no taxes, you wouldn’t get the child tax credit, that’s what the Additional child tax credit will do is give you that credit regardless of how much in taxes you owe.
Box 67 – Amount paid with extension to file – Should it be necessary to file an extension and you owe money, you can put the amount you paid with the extension here.
Box 68 – Credits from Form 2439 (Notice to Shareholder of Undistributed
Long-Term Capital Gains) Form 4136 (Credit for Federal Tax Paid on Fuels) Form 8801 (Credit for Prior Year Minimum Tax-Individuals, Estates, and Trusts) Form 8885 (Health Coverage Tax Credit)
Box 69 – (unique to 2008) First Time Homebuyer credit with Form 5405.
Box 70 – (also unique to 2008) Recovery Rebate Credit
Box 71 – Total Payments and Credits made (added together and subtracted from box 61) The result is either an overpayment (box 72) or an amount you owe (box 75)
Box 73a – Amount of refund you want refunded to you. 73b-d – bank information for direct deposited refunds.
Box 74 – Amount you want applied to next years’ taxes.
Box 76 – Amount of the penalties for late tax payments, etc.
The EZ form and the 1040A forms are less complex and have fewer boxes and forms. Hopefully this article has given you some idea how to complete your form 1040 and maybe answered some of your questions.