The 1040 “U.S. Individual Income Tax Return” is the most complex tax form the IRS provides to Individuals, to report any and all Tax Stories. The 1040 builds and expands on the features of the intermediate 1040A form.
If you have not done so already, I suggest that you read and study the (2) blog posts that explain the form 1040EZ, and the (11) blog posts explaining the form 1040A. You can see those posts listed to the right, in the Recent Posts section. You need to verify if either of those two previous 1040-series forms can accommodate your Tax Story.
If they cannot, then you are required to use this form 1040 to file your taxes with the IRS – to report your more complicated Tax Story, that the previous 1040EZ and 1040A forms cannot accommodate.
Click to open the 2-page IRS form 1040 into a new browser window, to refer to as we learn about the form. You can then toggle between the several 1040 blog posts and the 1040 form. As a reminder, you can print or save any of these PDF tax forms – to use as a printed desktop reference.
Click the link below for the 106-page form 1040A instruction booklet from the IRS, as IRS form 1040-Instructions. The explanations in these many form 1040 blog posts are substantiated by the Tax Laws explained in the IRS instruction booklet. The instructions are very well written and frequently give terrific examples to demonstrate the Tax Laws pertinent to the form 1040.
There will be approximately 35 blog posts in this series to explain the form 1040 form ( in progress to be completed for late 2017, early 2018 ).
Just click the blue underlined hyperlink button at the bottom of each blog post, to progress to the next blog post in the series. We start with the top of page 1 of the form 1040, then work through each line to the end of page 2. The form 1040 is very complicated, so it takes many, many blog posts to adequately explain each line of the form.
All of the features of the 1040EZ and 1040A forms, are carried forward and incorporated into this third 1040 form. If your Tax Story cannot be accommodated by those first two 1040-series forms – you must use the form 1040.
This first 1040-related blog post will outline the additional features of the form 1040, so you have an introduction to the complexity of the form. Subsequent blog posts will explain every form 1040 feature in detail.
The tax form 1040 can at times be incredibly complicated, because it is designed to encompass any and all circumstances relating to an Individual’s Tax Story. The many additional Income, Adjustment, Deduction, Credit and Tax categories make it very complicated. You will see that below as these many new features are listed and described.
The best way to initially learn the form 1040, is to only focus on the features of the form that affect your own Tax Story. As you progress through the blog posts for the first time, just concentrate on what is relevant to your own Tax Story.
The other information not related to your present Tax Story will be there to learn – if your Tax Story gets more complicated in the future. It is most often too overwhelming to attempt to learn every feature about the form 1040 – your first time through reading and studying these blog posts.
In the future you can learn about the new circumstances that might arise to change or complicate your particular Tax Story. At that point you could review the blog posts or use the search feature to find the new tax form features you need to learn. For instance, these are some circumstances that might happen to your Tax Story in the future – that you would then need to learn about, to properly report on your 1040 form tax return:
- Self-Employment information for a new home-based business you started
- How to report Rental Income for that beach house you started renting
- How to take advantage of the Itemized Deduction feature to report large unreimbursed medical expenses or unreimbursed job-related expenses
- How to take a credit, for that $35,000 Tesla Model 3 you are considering
- How to file the taxes for the Nanny you hired, to care for your newborn
- How to report your new HSA (Health Savings Account) contributions and distributions that your salary job now provides as a benefit to you
- How to take the Adoption Credit for your new adopted child
One of the primary purposes of this entire “Taxes Are Easy” blog – is to be a complete reference for your Tax Story – which can explain every line on your tax return. To keep that promise, some of the blog explanations of the complex form 1040 features, by necessity, have to go into great detail.
The 1040 form might test your patience for that line-by-line level of detail – as explained in the blog posts.
If you get frustrated or overwhelmed with learning the form 1040 for your particular Tax Story, just submit a comment on any blog post with your question, or send me an email at Mike@TaxesAreEasy.com. I’ll help you create a “form 1040 lesson plan” that will explain your unique Tax Story, without the other 1040 information you do not need to learn at this point.
The goal is for you to understand your own Tax Story – by understanding every line on your tax return. With the 1040 form, though, there are many lines on the form – that could possibly never affect your Tax Story.
Ignore those for now, and just concentrate on what is pertinent to your current Tax Story. You can always come back to those tax details later, to learn more about the features of the form 1040 – as your evolving and more complicated Tax Story will dictate.
The Filing Status, Exemptions and Dependents sections at the top of page 1 of the form 1040 are exactly the same as introduced on the form 1040A. Please refer to these three 1040A blog posts that explain these topics, if you have not reviewed and studied these posts already.
The 1040A: Filing Status and The 1040A: Qualifying Children & Relatives and The 1040A: The Personal and Dependent Exemptions
The Income categories listed on page 1 are expanded on the form 1040, and include every income category brought forward from the forms 1040EZ and 1040A. See these previous posts that explained the Income categories from the forms 1040EZ and 1040A. They were The 1040EZ: Who Can Use this Form? and The 1040A: (7) New Income categories.
The (8) new Income categories on the form 1040 are:
- line 10: Taxable refunds, credits, or offsets of state and local income taxes
- line 11: Alimony received
- line 12: Business income or (loss)
- line 13: Capital gain or (loss)
- line 14: Other gains or (losses)
- line 17: Rental real estate, royalties, partnerships, S-corps., trusts, etc.
- line 18: Farm income or (loss)
- line 21: Other income
A separate Blog post will explain each of these in detail. I will also explain in the blog posts the general income producing categories shown below, and the particular forms and schedules required to report such income:
- Self-Employment income reported on the Schedule C
- Capital Gains and other Investment Income reported on the Schedule D
- Rental Income reported on the Schedule E
- Royalty, Partnership , S-Corp., Trust and Estate income that is reported to you on the various 1099-MISC and K-1 forms, and then reported on the Schedule E
- Farm Income reported on the Schedule F
The Adjustment categories listed on page 1 are expanded on the form 1040, and include the (4) Adjustment categories brought forward from the form 1040A. You can review the (4) 1040A Adjustments on the previous blog post at The 1040A: (4) New Adjustment categories. The (10) new Adjustment categories on the form 1040 are:
- line 24: Certain business expenses of reservist, performing artists, and fee-based government officials
- line 25: Health savings account deduction
- line 26: Moving expenses
- line 27: Deductible part of self-employment tax
- line 28: Self-employed SEP, SIMPLE, and qualified plans
- line 29: Self-employed health insurance deduction
- line 30: Penalty on early withdrawal of savings
- line 31a: Alimony paid
- line 35: Domestic production activities deduction
- line 36: (10) miscelaneous write-in adjustments
A Blog post will explain these in detail.
The Itemized Deductions feature is added to line 40 on page 2 of the form 1040. You report these on the Schedule A form. Itemized Deductions can potentially give you a much larger deduction than the Standard Deduction. You can utilize either the Standard or Itemized Deduction on the form 1040, to give you the largest reduction of your final Taxable Income. A blog post will explain the Itemized Deduction feature and the Schedule A.
If you remember, the Standard Deduction was the only option on the forms 1040EZ and 1040A. You cannot use the Itemized Deduction feature on the forms 1040EZ or 1040A. Please review the blog post The 1040A: The Standard Deduction if you have not already studied this post.
Income Phaseout Levels for Itemized Deductions and Personal and Dependent Exemptions for higher-income taxpayers. These Phaseout Levels are a component of The Affordable Care Act, and limit these (2) deductions when your income rises above the defined threshold levels. A Blog post will explain these in detail.
The Nonrefundable and Refundable Credits are expanded on the form 1040. Please review these previous 1040A posts that explained the credits available on the form 1040A. All of these 1040A form credits are carried forward to and included in the form 1040. The 1040A: the (5) Nonrefundable Tax Credits and The 1040A: Payments and (4) Refundable Credits
Several Nonrefundable Credits have been added to the form 1040:
- line 48: Foreign tax credit
- line 53: Residential energy credits
- line 54: Other (11) miscellaneous credits
- General business credit
- Credit for prior year minimum tax
- Mortgage interest credit
- Credit for the elderly or the disabled
- Adoption credit
- District of Columbia first-time homebuyer credit
- Qualified plug-in electric drive motor vehicle credit
- Qualified electric vehicle credit
- Alternative motor vehicle credit
- Alternate fuel vehicle refueling property credit
- Credit to holders of tax credit bonds
Several Refundable Credits have been added to the form 1040:
- line 72: Credit for Federal Tax on fuels
- line 73: Other (4) miscellaneous credits
- Notice to Shareholder of Undistributed Long-Term Capital Gains
- Health Coverage Tax Credit
- Credit for Repayments
- Tax payments made during the year, that do not go on any other line
A Blog post will explain these in detail.
The many Regular Additional Taxes will be explained that can only be reported on the form 1040. All the tax categories introduced on the forms 1040EZ and 1040A carry forward to the form 1040. Some of the new taxes reported on the form 1040 are rarely used and imposed on your tax return, but they will be explained so you are aware of them. The many new regular tax categories are reported and combined onto line 44:
- Tax on your normal taxable income above the $100,000 threshold that uses the Tax Computation Worksheet, instead of the Tax Tables used for the previous 1040EZ or 1040A forms.
- Tax calculated using the Qualified Dividends and Capital Gains Tax Worksheet, to give you the lower Capital Gains tax rates on Qualified Dividends and Long-Term Capital Gain investments you were paid
- Tax calculated using the Schedule D Tax Worksheet if you reported more sophisticated investment income on the Schedule D
- Reporting tax on your child’s interest and/or dividends – form 8814
- Reporting a child’s unearned income above $2,100 – form 8615
- Tax on lump sum distributions – form 4972
- Tax on section 962 election
- Recapture of an Education credit from previous years – form 8863
- Tax relating to a section 1291 fund
- Tax on farming or fishing income averaging on the Schedule J
- Foreign earned income tax worksheet if you claimed an exclusion for foreign income excluded from U.S. Taxation.
A Blog post will explain these in detail.
The Alternative Minimum Tax (AMT) on line 45 is explained in its own blog post, as this is by far the most confusing and misunderstood tax the IRS imposes on “higher-income” taxpayers.
The U.S. Congress passed the AMT in 1969 to ensure a few very high-income taxpayers at that time, paid a minimum amount of tax. An earlier report to Congress had documented that in 1967, 155 taxpayers with adjusted gross incomes above $200,000 – had paid no income tax, as they had maximized their legal deductions to create a zero tax liability for themselves. That $200,000 threshold would be equivalent to $1.17 million dollars today, adjusted for the succeeding many decades of inflation.
Congress deemed this unfair, and created an additional layer of taxes above the regular income tax rates – called the Alternative Minimum Tax. This was designed to force these 155 very high-income taxpayers to pay a certain minimum amount of tax, even if their regular tax liability was zero because they legally took enough deductions to zero out their tax bill.
Congress, though, never properly indexed the AMT threshold amounts for inflation, so many upper-middle class taxpayers today are liable for this additional tax. The AMT was never intended to “capture” any middle-class taxpayer as it has done for many decades now. This is a huge revenue source for Congress, so there is strong resistance to repeal the AMT law, or adjust the income thresholds that trigger the AMT tax.
President Trump in 2017 has proposed through his Tax Reform agenda to eliminate the Alternative Minimum Tax (AMT). It will be interesting to observe the “battle” this will setup with a resistant Congress that never wants to repeal the AMT. Follow my “Tax Update” blog posts beginning in December 2017 for any news on this matter. See that blog post at Tax Law Updates & News.
The Other Taxes are reported on the form 1040 that encompass the remaining taxes Congress has written into the Tax Laws, including the high-income Affordable Care Act Taxes that begin in 2010. They are:
- line 57: Self-Employment taxes reported on the Schedule SE
- line 58: Unreported social security and medicare tax on tip income – form 4137, and Unreported social security and medicare tax on salary income – form 8919
- line 59: Additional tax on IRAs and other qualified retirement plans
- line 60a: Household employment taxes – schedule H
- line 60b: First-time homebuyer credit repayment
- line 62a: Additional medicare tax – form 8959
- line 62b: Net investment income tax – form 8960
- line 62c: the remaining (27) miscellaneous tax categories for seldom-used categories that only affect a small number of Taxpayers each year
A Blog post will explain these in detail.
One Payment category has been added to the form 1040:
- line 71: Excess social security and tier 1 RRTA tax withheld
This happens typically to high-earner taxpayers who switch jobs during the year, when the multiple jobs combined withheld too much Social Security tax from their paychecks.
The wage income cap for regular wages subject to Social Security tax in 2016 was $118,500 – for a maximum withholding amount of $7,347.
If the taxpayer earned above $118,500 from their multiple jobs – the several employers combined often withhold above that $7,347 limit of Social Security tax. This line 71 will refund the excess Social Security tax withholding that was collected above that $7,347 limit. A Blog post will explain this in detail.
Click the hyperlink below to begin the blog post that will explain the (8) new Income categories added to the form 1040.
The 1040: The (8) New Income Categories
Feel free to comment on these blog posts, or send me an email at Mike@TaxesAreEasy.com
Blog Written Content ©2017 Michael D Meyer. All rights reserved.
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Legal Disclaimer: Nothing written or expressed in this Blog shall be construed as legal, accounting, or tax advice. This Blog is for informational purposes only, to inform Individuals about the IRS tax forms required to file an individual tax return, and the instructions that accompany such IRS tax forms.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any tax transaction or filing any tax form.