There are two forms most filers will use each year when they file their taxes, either a 1040EZ or the 1040A. Based upon your unique situation, you will have to use one or the other. However, each year you should check your form as these forms often change from year to year.
Which form should you use?
1040EZ
The 1040EZ is the shorter form and the easier of the two forms to complete (hence the name EZ). Click here to see a sample 1040EZ form. You are eligible to use the 1040EZ if you meet all of the following requirements:
- Your taxable income is less than $100,000 and comes only from wages, salaries, tips, unemployment compensation, taxable scholarships or fellowships and up to $1,500 in taxable interest;
- You have no dependents;
- You are younger than 65 and not blind at the end of the year;
- Your filing status is single or married filing jointly;
- You had no advance earned income tax credits (EITC), no adjustments to income, no credits except EITC and owe no household employment taxes;
- You have no deductions to itemize.
1040A
The 1040A is the longer form and is more complex to complete. Click here to see a sample 1040A form. You are eligible to use this form if your taxable income is also less than $100,000. In addition to the sources listed under the 1040EZ, your income sources can also come from investment income, capital gain distributions and retirement plan income. Other requirements include:
- You do not itemize deductions;
- You claim only specific adjustments to income;
- You owe only certain types of taxes;
- You claim only specific credits.
The 1040A is more detailed than the 1040EZ and it is what most filers use. In a number of cases, supplementary schedules and forms are attached to it that explains other kinds of income, expenses or credits.
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Income Types and Capital Gains
When completing your taxes you should become more familiar with terms that are frequently used throughout various forms, including the 1040EZ or 1040A.
Gross Income
Your gross income is the amount you earn before deductions have been taken out; also known as your pre-tax income. This income can include money from wages, dividends, certain retirement accounts, capital gains, alimony, rental income, royalty income unemployment and other interest income.
Capital Gains
Your capital gains are a profit that results from the appreciation of a capital asset over its purchase price. If the price of the capital asset has declined instead of appreciated it is called a capital loss. Capital gains occur in both real assets, such as property, as well as financial assets, such as stocks or bonds.
Adjusted gross income (AGI)
Your adjusted gross income (AGI) is a United States tax term for an amount used in the calculation of an individual's income tax liability. AGI includes all gross income adjusted by certain allowed deductions and is an important benchmark determining certain other allowed benefits.
Modified adjusted gross income
Your modified adjusted gross income (MAGI) is the adjusted gross income (AGI) modified by various adjustments. There are various MAGI's computed in different ways; the most used is Modified AGI for Roth IRA purposes.