tax information

WHICH TAX FORM SHOULD I REALLY USE? 1040, 1040A, 1040EZ

what-tax-form-should-i-use

There are three main forms that US citazens can use to file their annual income tax return. They are the Form 1040EZForm 1040A and Form 1040. Below is a description of each along with all the links that you will need to file your taxes.

1. Form 1040EZ is the easiest and simplest form the IRS will let you use to file your taxes. 

You need to meet the following conditions in order to use this form:

  • Your filing status is single or married filing jointly

  • You claim no dependents
  • You, and your spouse if filing a joint return, were under age 65 at the end of the year
  • Your only income sources are wages, salaries, tips, taxable scholarship and fellowship grants, unemployment compensation, or Alaska Permanent Fund dividends, and your taxable interest was not over $1,500
  • Your taxable income is less than $100,000
  • Your earned tips, if any, are included in boxes 5 and 7 of your Form W-2
  • You do not owe any household employment taxes on wages you paid to a household employee
  • You are not a debtor in a Chapter 11 bankruptcy case filed after October 16, 2005
  • You do not claim any adjustments to income
  • You do not claim any credits other than the earned income credit
  • Advance payments of the premium tax credit were not made for you, your spouse, or any individual you enrolled in coverage for whom no one else is claiming the personal exemption
  • You are not itemizing deductions and claim any adjustments to income tax credits (other than the earned income credit)

If you meet these conditions then file your taxes using the 1040EZ form. It’s the easiest way to do it. Here are links to the forms. Here is the link to the 1040EZ instructions.

2. Form 1040A is the next simplest form allowed by the IRS.

So if you don’t qualify to use the 1040EZ you should check to see if you can use this form instead. The criteria for eligibility for 1040A is listed below.

  • Your income is only from wages, salaries, tips, taxable scholarships and fellowship grants, interest, ordinary dividends, capital gain distributions, pensions, annuities, IRAs, unemployment compensation, taxable Social Security or railroad retirement benefits, and Alaska Permanent Fund dividends
  • Your taxable income is less than $100,000
  • You do not itemize deductions
  • You did not have an alternative minimum tax adjustment on stock you acquired from the exercise of an incentive stock option
  • Your only adjustments to income are the IRA deduction, the student loan interest deduction, the educator expenses deduction, the tuition and fees deduction, and
  • The only credits you are claiming are the credit for child and dependent care expenses, the earned income credit, the credit for the elderly or the disabled, education credits, the child tax credit, the additional child tax credit, the net premium tax credit, or the retirement savings contribution credit

Here’s the link to the 1040A instructions - Form 1040A Instructions

3. 1040 is the most complicated tax form and is used by taxpayers who are unable to file using a 1040EZ or 1040A.

Here is the criteria for using this form.

  • Your taxable income is $100,000 or more
  • You have certain types of income such as unreported tips; dividends on insurance policies that exceed the total of all net premiums you paid for the contract; self-employment earnings; or income received as a partner, a shareholder in an S corporation, or a beneficiary of an estate or trust
  • You itemize deductions or claim certain tax credits or adjustments to income, or
  • You owe household employment taxes
     

Here is the link for the form 1040 instructions - Form 1040 Instructions.

The IRS provides a handy online tool for determining which form you should use when filing your taxes. You can try it out here What is the simplest form to use to file my taxes? 

Below is a list of the many of other often used forms. You can use these resources when preparing your own return.


Form 1040, Schedule A - Itemized Deductions

Form 1040A or 1040, Schedule B - Interest and Ordinary Dividends

Form 1040, Schedule C - Profit or Loss From Business (Sole Proprietorship)

Form 1040, Schedule C-EZ - Net Profit From Business

Form 1040, Schedule D - Capital Gains and Losses

Form 1040, Schedule E - Supplemental Income and Loss

Form 1040A or 1040, Schedule EIC - Earned Income Credit

Form 1040A or 1040, Schedule 8812 - Child Tax Credit

Form 1040A or 1040, Schedule R - Credit for the Elderly or the Disabled

Form 2441 - Child and Dependent Care Expenses

Form 8863 - Education Credits (American Opportunity and Lifetime Learning Credits)

Form 8888 - Allocation of Refund (Including Savings Bond Purchases)

Form 8949 - Sales and Other Dispositions of Capital Assets

If you need help determing which form you need to use feel free to reach out to PJF Tax or just let us handle it for you this tax season.

WHERE THE H*LL IS MY REFUND?

tax-refund

It’s frustrating, I know. You want your money back from the IRS. After all the IRS demands their money on one specific date each year and if you don’t pay they charge you penalties and interest. If only you could do the same. Instead you have to sit back (try to relax) and wait. The good news is there are some easy ways to check on the status of your refund.

First go to Where’s My Refund?  This IRS web page has the most up to date information available about your refund. You can use it to get your personalized refund status. It’s updated once a day so no need to waste your time checking every hour. You should wait 24 hours after your or your tax preparer receives confirmation that your return was accepted by the IRS. If you paper filed, sorry, but you have to wait at least 4 weeks for your info to show up. Make sure to have your tax return information ready because you’ll need to input your social security number, filing status, and the exact whole dollar of your current year’s refund.

If you really want to talk to an agent (I wouldn’t recommend this) you can call the refund hotline. The number is 1-800-829-1954. Again make sure you have your tax return information. Unless your Where’s My Refund tool tells you to call I wouldn’t as the agent probably won’t be able to give you any more info than what’s online.

If you filed an amended return there is a separate link. Where’s My Amended Return? Just follow the instructions and input the required information from your tax return.

Both of these tools will provide you will the progress of your tax return. These are:

  1. Return Received
  2. Refund Approved
  3. Refund Sent

Refund for e-filed returns generally process within 21 days of the acceptance date. Refunds from mailed returns take anywhere from 6-8 weeks to process from the date the IRS receives the return. Refunds for amended returns can take up to 16 weeks to process. These are just general rules so don’t worry if the 21 days are up and you haven’t received your return. Use the tool listed above to check the status. Sometimes the IRS gets bogged down during busy times of the year.

Minnesota Tax Return Refunds

If you are just waiting on your Minnesota state tax return you can also check the status of this. Go to the Minnesota State Tax Website to do this - https://www.mndor.state.mn.us/tp/refund/_/

You’ll need similar information just like the Federal Refund Checker. Using this tool you can check any return filed within the past 12 months. In general you should receive your refund within 90 days of filing a paper return and 15 business days for e-filed returns. Again, this is a general rule so don’t panic if you still haven’t received your refund. I have seen Minnesota state refunds take much longer to process

You can also call our automated tax service line at 651-296-4444 (Metro) or 1-800-657-3676 (Greater Minnesota). If you have not received your refund and:it has been over 15 days since your electronic return was accepted or more than 90 days since you mailed your paper return, AND neither the online system nor the automated line has any information on your return, then you can call our individual income tax help line at 651-296-3781 (Metro) or 1-800-652-9094 (Greater Minnesota), Monday through Thursday, 8:30 a.m. – 5:00 p.m. and Friday, 8:30 a.m. – 4:30 p.m.

5 Most Itemized Deductions You Need to Take this Tax Season (Save Your Money!)

Today let’s talk about 5 itemized tax deductions that can you big money this tax season. But before we get into that we can quickly go over the difference between itemized versus standard deductions.

itemized-deduction-save-money

Schedule A is the way you itemize your deductions. It’s basically a list of all your itemized deductions for the year. But you only use this form if you are itemizing. You can either itemize or take the standard deduction. The standard deduction is really just that, the standard deduction that the IRS allows you to take each year. The amount depends on your tax status (Single, Married Filing Jointly, Head of Household, etc.) and whether or not you are claimed as a dependent by someone else. You can also get an additional standard deduction if you are blind and/or over the age of 65. You don’t have to track or prove anything. You can take this deduction every year no matter what. Itemized deductions are things like medical costs, long-term care, property taxes, mortgage interest, personal property tax and many others. If you’ve tracked this information throughout the year you can choose whether or not you want to take the standard deduction or the itemized. Basically choose the larger amount as it will give you the biggest tax benefit. You can work it out both ways to see which is best for you. (We do this for you if PJF is preparing your taxes.)

One thing to keep in mind is if you itemize, the alternative minimum tax could kick in if your income is too high. What that means is your deductions are added back to an alternative tax calculation to determine if you need to pay a minimum amount of tax. Basically, you calculate tax two different ways. It’s the IRS’ way of making you pay a minimum amount of tax even if you have a lot of itemized deductions.

So if you are itemizing this year here are the 5 itemized tax deductions to look for to help lower your taxable income.

  1. Sales Tax or Income Tax – If you live in a state like Minnesota with income tax you can deduct all of the income that you pay over the year. If you are using a tax software it will usually take this deduction for you. The thing to look for is if your income is low this year (or there is no state sales income tax) you should deduct your sales tax instead. For example, if you purchased a car you might have paid a large chunk of sales tax on that purchase. As long as you have documentation to prove it you can deduct this along with all of the other sales taxes you’ve paid over the year. Consider calculating both income and sales tax to make sure you are taking the largest deduction possible.
  2. Property Taxes – This is all of the taxes that you pay related to your personal or real property. The biggest one could be your primary residence but could also include your vacation property (assuming you don’t rent it out – if you do then the taxes would go on schedule E). This deduction also includes auto and boat registration taxes. Basically any state or local taxes that you paid throughout the year charged on personal property, based on the value of the property and charged on an annual basis
  3. Mortgage Interest Deduction – This is the mortgage interest paid on your primary interest and vacation/second home. However, you only get to deduct the interest on up to $1,000,000 of mortgage debt. I know this seems like but I’ve seen cases where a primary residence and cabin debt get over the $1,000,000 mark pretty quickly. We love our cabins in Minnesota!
  4. Charitable Contributions – This is any donation to non-profits like cash or non-cash items like clothing and household goods. Keep in mind if the value is over $500 you have fill out the additional 283 Form. And if the value is over $5,000 you have to get the item appraised. Do not appraise it yourself the IRS won’t count this.
  5. Miscellaneous Deductions – Some examples of these things could be safe deposit boxes, estate planning fees,  tax preparation fees, unreimbursed employee expenses, investment management fees, casualty losses, and gambling losses (only to the extent you have gambling gains.  Keep in mind most of these deductions are subject to 2% of you AGI meaning the combined amount of these expenses have to be over 2% of your adjusted gross income in order to be deductible at all.

There you go, the five deductions you need to take this year if you’re itemizing. The 6th item that I left off the list is Medical deductions. I left if off because it is harder to meet the threshold. If you are older than age 65 it is subject to 7.5% of your AGI and for everyone else is 10% of your AGI. If you’ve itemized in previous years you should consider taking a look to make sure you took every deduction on this list. If not you can amend a tax return within three years of the date you filed or within two years form the date you paid the tax, whichever is later.

Do I Really Need to Keep My Tax Return For 7 Years?

The IRS Requirements for Record Keeping

We all have heard that we have to keep our tax returns and pay stubs for X number of years. I’ve heard anywhere from 0 to Forever. (I hope your will doesn’t specify who inherits your lifetime accumulation of tax documents.) Well the IRS actually has very explicit rules on this which you need to follow to avoid the stress other issues that come when you receive an IRS letter or notice in the mail. No need to rely on rules of thumb and hearsay. Here is what the IRS says.

Receipts/Cancelled Checks – These items along with other documents supporting an item of income, deduction, or credit that appears on a tax return must be kept for as long as they could become important in the administration of any IRS revenue law. This generally means until the period of limitation expires for that specific tax return. This is 3 years from the date you filed your return. Keep in mind returns filed early (before the tax deadline) are treated as being filed on the due date (usually April 15th). Conclusion: In general 3 years.

keep-your-taxes

Fraudulent or No Returns – There is no period of limitations when you file a fraudulent return or if you didn’t file a return. A fraudulent return is when you knowingly filed incorrectly. Examples would be leaving off income or taking deductions/credits you are not entitled to. The IRS rule is that for income you should have reported is not reported and is more than 25% of your gross income shown on the return the time to assess is 6 years from when the return is filed. Conclusion: Unlimited – File your taxes and don’t try to defraud the IRS.

Claiming Credits and Refunds  - If you want to claim a credit or refund on your tax return, the period to make the claim is 3 years from the date the original return was filed (or the due date of the return if filed early), or two years from the date the tax was paid, whichever is later. If filing a claim for an overpayment resulting from a bad debt or loss from worthless securities the time to make a claim is 7 years from when the return was due. Conclusion: In general 3 years. 7 if you claim a loss from bad debt or worthless securities.

Health Care Coverage – Starting in tax year 2014 and later you should also keep records related to yours and your family’s health care insurance coverage. This includes records of employer provided coverage, premiums paid, and private coverage documentation. This is to show that you and your family maintained the required minimum essential coverage as now required by Obama Care. If you are exempt from minimum essential coverage you should keep your certificates of exemption that you receive from the marketplace or other documentation to support the claimed exemption on your tax return. This documentation follows the same rules as receipts and cancelled checks so the statute of limitations is 3 years. Conclusion: In general 3 Years.

Small Business Documentation – If you own a business you need to keep all of your employment tax records for at least 4 years after the tax becomes due or is paid, whichever is later. Also, there is no method of bookkeeping the IRS requires you to us but however your account for your financial information it must clearly and accurately reflect your gross income and expenses. These records This can get a little complicated so check out this IRS Publication, Employer’s Tax Guide, for more information. Conclusion: In general 4 Years.

That’s it. Those are the IRS rules. You can shred those pay stubs from your first summer job. Once thing to consider is that you may want to keep your records for non-tax purposes. While there is no law your insurance company, banks, or other creditors may want to see this information.

If you have PJF Tax prepare your tax return we keep relevant documents in digital version for the appropriate amount of years. If you want to learn about all the other benefits of using a professional tax preparer.