With about a month left to get your taxes in, you need to know which form you'll need to file your return. Individuals can choose from three different forms that vary in complexity from the shortest and easiest 1040EZ form to the mid-level 1040A form and the catch-all full 1040 form.
There are trade-offs involved in the decision of which form to use. On one hand, you can always use a more complicated form than you actually need, but that comes at the price of having to navigate a more difficult set of instructions and guidelines than necessary. But even if you're eligible to use a simpler form, doing so can cheat you out of tax breaks that could produce substantial savings on what you pay the IRS. Below, you'll find some guidelines on how to decide whether you're using the right 1040 tax form.
The basics of Form 1040EZ
Form 1040EZ is a popular tax form, with almost one in six taxpayers using the one-page form in the most recent year for which IRS data is available. With only 14 lines to fill out, the 1040EZ form comes the closest to the dream of a postcard-sized return that many lawmakers cited in their initial look at tax reform.
However, the simplicity of the 1040EZ form makes it available only to a select group of taxpayers. To use it, you can't have a taxable income of more than $100,000, and all of your earnings must be from a conventional job as reported on a standard W-2 form. If you need to file as head of household, a qualifying widow or widower, or as a married person filing separately, then you can't use the 1040EZ form. The only permitted filing statuses are single and married filing jointly. Those who are 65 or older, or have dependents can't use the form.
Also, your ability to claim valuable tax benefits is limited. Those who want to itemize deductions can't do so on Form 1040EZ. If you have adjustments to income, such as for deductible IRA contributions or student loan interest, then 1040EZ is unavailable. Interest income can't be more than $1,500, and you can't claim dividend income or capital gains. Among credits, only the earned income credit is permitted on Form 1040EZ.
Is Form 1040A the perfect compromise?
Form 1040A offers a bit more wiggle room for filers. All filing statuses are available, and you can claim tax credits for children, child and dependent care expenses, education costs, and a select group of other credits. You can put IRA contributions or student loan interest deductions on the 1040A form, and you can report income from interest or dividends, Social Security, retirement plan distributions, and certain capital gains distributions from mutual funds or ETFs.
Even with this added flexibility, not everyone can use Form 1040A. Those earning more than $100,000 aren't eligible, and those who want to use credits other than the limited selection on the form can't do so. Most importantly, those who want to itemize deductions aren't able to use Form 1040A to do so. More than 40 million taxpayers were able to use Form 1040A, but that still left the majority needing to use the more complicated full 1040 form.
Form 1040: Always available
You'll never get into trouble with the IRS for using Form 1040. It lets you take advantage of any tax break that you're allowed to use. The downside is just that it's a long form, with dozens of lines on a front-and-back format.
Those with incomes of $100,000 or more have to use the 1040 form, as do those claiming itemized deductions. If you're an entrepreneur with business income or an investor with capital gains or losses from sales of securities or other investments, then the 1040 form will be your pick.
Don't pay more than you have to
It's always tempting to file the simplest return possible. But if you're ever in a position where you're eligible for a substantial tax break that's only available by filing a more complicated form, you should almost always do so. Deciding to keep things simple when you're only giving up a $5 or $10 credit is one thing, but the forms aren't so much more difficult that you should sacrifice larger tax breaks just for the sake of a shorter form. Use the right form and pay the least you possibly can to the IRS.