Key Takeaways
- The 1040 form is used to file your tax return and it’s important to know what’s on it so you can take advantage of any areas where you may be able to save money.
- The main sections of the 1040 form are Income, Adjusted Gross Income, Tax and Credits, and Other Taxes.
- There are several ways to file your tax return ranging from doing it yourself, to using online programs, community volunteers, or hiring an accountant or tax preparer.
Have you ever watched one of those shows where someone walks in to a grocery store, fills their cart, then takes out a fist full of coupons at the checkout line and only owes a few dollars? It’s amazing! We are going to look at the same thing with your taxes and see if you can clip some tax coupons to save money.
The tax code was established in 1913 with 400 pages. It’s now over 75,000 pages! We’re not going to go through all those pages, but we will look at the 1040 form in order to give you a good idea of what’s on there.
On the first side of the 1040 form you have income, less adjustments, for adjusted growth income. On the back side, you have deductions, tax credits, and other taxes to get how much tax is owed. Let’s look at each of these sections.
The first section of the 1040 covers your income and it looks like this:
You have things like salary, interest in dividends, capital gains, pensions, Social Security, IRA distributions and other forms of income you earn.
The next section is Adjusted Gross Income and it looks like this:
Things such as Health Savings Accounts contributions, IRA contributions, student loan interest deduction and more fall under this section.
On the back side of the form, the first section is Tax and Credits:
This is where you do your deductions. The standard deduction is a fixed dollar amount that reduces the income you are taxed on. This number varies according to your filing status (married, single, etc). Taking the standard deduction is usually the easy way to go in terms of doing paperwork, but itemizing can pay off for some people by giving you a lower tax bill. You might want to itemize your deductions if:
- You have itemized deductions that total more than the standard deduction you’d receive
- You paid mortgage interest and real estate taxes on your home
- You had large, uninsured medical and dental expenses
- You had large, uninsured casualty or theft losses (fire, flood, etc.)
- You had large, unreimbursed expenses as an employee
- You made large contributions to qualified charities
There are also personal exemptions which is tax-free money you get to deduct for every taxpayer and dependent you claim, such as yourself, a spouse and children.
There are some great tax credits you might qualify for such as Earned Income Tax Credit, Child and Dependent Care Credit and Lifetime Learning Credit. These are one-for-one credits, so definitely worth checking to see if you qualify for any of them.
The final section of the 1040 is Other Taxes:
This includes things like self-employment tax, investment income tax, and other miscellaneous taxes.
There are different ways you can complete your tax return:
- Use free online software
- Pay a fee for online deluxe software
- Community volunteers – there are people who volunteer to help you with your taxes one on one in your community
- Hire an accountant or other tax preparer
However you choose to file your return, clip those tax coupons and make some savings! Put more money in to your pocket for other things that you need. Makes all the sense in the world!
Until next time, enjoy.
Gary
