Picking the right income tax form

 

By now you've determined that you need to file a return, so set's figure out which form to use. There are three flavors of the 1040 individual income tax return.

Form 1040EZ

The easiest is obviously Form 1040EZ. This is a one page form with only a few lines. Many people can even file a 1040EZ using a touch-tone telephone.

Although the 1040EZ is simple, only a limited number of people qualify to use it. To be able to file 1040EZ you must have taxable income of less than $50,000 and interest income of less than $400.

Also, only singles and couples with no dependents can file the 1040EZ, and you must be under age 65. Further, you cannot itemize deductions with 1040EZ, and you can't deduct an IRA contribution either.

Because of these restrictions, only about 15 percent of all filers use Form 1040EZ.

Form 1040A

Form 1040A is a step up in complexity from Form 1040EZ. Form 1040A can be filed by all types of people, including heads of household and senior citizens.

However, 1040A filers still must have taxable income of less than $50,000 and can't have income from alimony, rents or capital gains. 1040A filers can take advantage of things like the child care credit and the IRA deduction, but they can't itemize their deductions.

Because of these limitations, only about 20 percent of all filers use Form 1040A.

Form 1040

Form 1040, otherwise known as the long form, has more lines and schedules than the other versions of Form 1040.

Many people are forced to file the long form because they have taxable incomes above $50,000. Others must use the long form because they have capital gains or losses, or because they run an unincorporated business.

Even if you could file one of the simpler forms, you should file the regular Form 1040. The long form is the best way for you to reduce your taxes through itemized deductions, retirement accounts or a small business, and the sooner you become comfortable with the long form, the better.

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