Whether you're getting ready to file your taxes or are facing a mountain of documents to fill out for a new job, navigating the world of tax paperwork can really make your head spin. There are a few key IRS tax forms that are especially likely to impact your federal and state taxes, so here are five in particular you should know about.
When you file your taxes, there's a good chance you're busting out good old Form 1040, the U.S. Individual Income Tax Return form. Form 1040 is where you'll report the income you've earned throughout the year, as well as any credits or deductions you might be eligible for. Depending on your personal tax situation, you may need to add other forms or schedules to your 1040 to file a complete tax return.
If you're a salaried or hourly employee, you should receive a W-2 summarizing the amount of income you received for the year, as well as the amount of federal, state, and miscellaneous taxes withheld from your paychecks. This information is crucial, because you'll need to include it when you file your tax return for the year. Employers are required to provide a W-2 no later than Jan. 31 in the year following the tax year. Additionally, the IRS is supposed to receive a copy of each employer-issued W-2 for its records. However, keep in mind that if you're freelance or self-employed, you won't receive a W-2 from the clients or companies you did business with. Rather, you'll most likely receive Form 1099.
Whenever you start a new job, you're required to submit a W-4, which tells your employer how much money to withhold from your paychecks for taxes. Though the form itself is relatively simple, some people struggle with Form W-4 because they want to make sure to claim the right number of allowances. The more allowances you claim, the less money your employer will withhold from your paychecks for taxes. You can typically claim an allowance for yourself, a spouse, and each dependent in your household, though you're not required to do so. The more accurately you complete your W-4, the more likely you are to pay the right amount of taxes throughout the year. This can help you avoid owing money or getting too large a refund come tax season.
If you're paying a mortgage, Form 1098 can come in handy during tax season, as it's used to list the amount of mortgage interest you paid to your lender over the course of the year. It might also contain key information such as the amount you paid in points to your lender. If you're paying off student loans or are making tuition payments, Form 1098 is where you'll find a summary of what you paid. All of this information is critical in helping you determine which tax deductions you're eligible for and in what amounts.
You aren't liable for taxes just on the money you earn from your regular job. Any time you make money, whether it's interest from your bank, dividend payments from a stock you own, or freelance income from a side gig, you're required to report and pay taxes on those earnings. Form 1099 is where you'll find all of that information neatly packaged for you. If you're freelance or self-employed, you should receive a 1099 from each client or company you did business with, provided you were paid at least $600. Similarly, if you earned interest from a savings account or collected dividend payments, you should receive a 1099 from your bank or brokerage house listing the amount you received for the year. Keep in mind that for every 1099 form you get in the mail, the IRS also receives a copy, so it's important to report your income accurately to avoid tax troubles down the line.
Of course, these are only some of the many tax forms you might encounter. The IRS has a more comprehensive list on its website, which can you review if you're interested in learning more. In any case, knowing about these five tax forms is a proper start.