Tax forms

IRS 1040A: Just a Step Above the EZ

If you want to use one of the simpler versions of the federal individual tax return you have a choice of the 1040EZ or the 1040A.  The 1040EZ is for people who don’t have kids and won’t be claiming any deductions other than the standard and no credits.

Deductions You Can Claim on the IRS 1040A

IRS form 1040A lets you claim deductions that you can’t on the 1040EZ but you still can’t itemize.  You can claim the following deductions, however.   None of these can be claimed if you are using the EZ form.

  • The IRA deduction.  Contributions to a traditional IRA (Individual Retirement Account) can be deducted from your taxable income on the IRS 1040A.
  • Education expenses deduction: tuition and fees can be deducted on the IRS 1040A.
  • Student Loan Interest Deduction: you can deduct the amount of money you spent on qualified student loan interest on the 104oA.
  • Educator expenses: if you are a teacher and you buy your own supplies then the 1040A allows you that deduction

Credits You Can Claim on the IRS 1040A

You can’t claim any credits except the Earned Income Credit with the 1040EZ.  The IRS 1040A, however, lets you claim some tax credits:

  • child/dependent care expenses
  • education credits
  • the child tax credit
  • the additional child tax credit
  • credit for elderly or disabled
  • the retirement savings contribution credit

Basically, the IRS 1040A is the simple EZ form plus deductions and credits that have anything to do with dependents, education or retirement.  Theses are common types of tax credits and deductions, more commonly claimed than others, so by developing the 1040A the IRS hopes to keep it simple even for taxpayers who claim just a few adjustments to income.

You Can Use the 1040A If…

  • Your adjusted gross income is less than $100,000.
  • You don’t itemize your deductions.

You Can’t Use the 1040A If…

  • You had some self-employment activity during the tax year.
  • You had some Schedule K passive income from being a shareholder in an S Corporation
  • You inherited some money from a trust or an estate
  • You hired a nanny or other type of household employee
  • You want to itemize your deductions (i.e. you had some pretty hefty medical expenses, you gave lots of money to charity, etc)

Why You Don’t Need to Know Any of This …

If you use commercial tax preparation software such as TaxAct or TurboTax, the software will choose which form of the IRS 1040 you should use: the EZ, the A or the long form.  There’s not a lot of difference between the simplest individual tax return form the 1040EZ, and the 1040A.  The EZ is one page long and the IRS 1040A is two pages long.  The long form is two pages but has lots and lots of Schedules attached to it so it’s very long.

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IRS form 941: Get it Right or Face Nightly Cold Sweats

Fear.  Panic.  Terror.  Not what you want to feel when you start your own business.  Yet, failure to comply with IRS requirements in a timely manner can leave you in a total panic.  Why?  Because the IRS doesn’t mess around with fees, penalties, and deadlines when it comes to business and taxes.

This is doubly true when you have one or more employees.  Even if that one employee is you, the IRS has very strict guidelines on submitting Social Security and Medicare taxes, aka Payroll Taxes on time.  These are filed and submitted on the IRS Form 941, called Employer’s Quarterly Federal Tax Return.
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 What is IRS Form 941?

This is a form due every three months, or every quarter (same thing).  When you have employees, you are supposed to withhold money from their paychecks for Social Security and Medicare taxes.  But you don’t keep that money of course- you report it to the IRS and submit it to them via the IRS Form 941.  Otherwise you’d be keeping your employee’s money for yourself, which is called stealing from  your employees.

So, four times a year you use the 941 to report to the IRS how much money you withheld from employee paychecks, and you submit that money to them as well.  IRS form 941 is also used to report other items associated with the payroll tax:

  • employee tips are included in this
  • sick pay is recorded too
  • adjustments for group-term life insurance too
  • COBRA premium assistance payments you may have made for any employees

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IRS Form 941 Due Dates

For each quarter, the form 941 due date is due the last day of the month following the close of the quarter.  So, for the first quarter which runs January 1 through March 31, IRS form 941 is due April 30.

IRS Form 941 Deposits

Now, if your company is large enough that you pay a whole bunch of money each quarter for payroll taxes, you may be required by the IRS to pay your 941 bill in a different way.  Different from sending a money order with the form, for example.  Or different from having your bank electronically send the amount due when you file the 941.

If you’re large enough, the IRS may require you to pay a deposit.  That’s when you deposit money to cover your payroll taxes in advance of actually filing the 941 form itself.  When there are large amounts of money involved, the IRS wants their money even earlier!

This is where fear and panic come in.  Those deposits are due January 31 for the first quarter: a full three months ahead of the due date for the form itself!  And…if you miss the deadline there are whopping fines and penalties.  And, since you’re depositing, that means thousands of dollars are due here, which means fines based on a percentage of the amount due can REALLY ADD UP.

Make Your Form 941 Deposits on Time!

So, one of the most important things to know about having employees is, if you are required to make these federal deposits (based on having over a certain threshold amount of payroll taxes due) make it your prime aim to get them in on time!!!!! Otherwise you’ll have a nightmare of fear, panic, and fines & penalties on your hands.

You will probably be using the IRS’s electronic payment system, EFTPS.  This requires that you sign up ahead of time by registering and then hooking up your business’s bank account to their system to make complex coded payments four times a year.  It’s just a nasty annoying system and I can only hope it gets better, more streamlined and user-friendly with time.

Register with EFTPS now if you have lots of employees or highly paid employee(s).  Go here to read about it and register.

Other Forms Like IRS Form 941

Farmers use Form 943, Employer’s Annual Tax Return for Agricultural Employees to report payroll taxes.  For very small businesses with less than $1000 payroll tax liability per year, they can submit IRS form 944 just once a year.  It’s the same as the 941 but it’s only submitted once, in January.  Nice for them!  It’s called Employer’s Annual Federal Tax Return.

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Shopping!

We All Love to Shop, But Save Money for Your Tax Bill with IRS Payment Plan

Love buying stuff?  You’re not alone!  We all love to shop, and I don’t care who you are: you have your weak spot too.  Even the most frugal amongst us: try as we may, we still let loose once in a while and splurge.  It’s human nature, after all.

Why People Pay Their Taxes Late: What Happened to Us?

But as a nation we have a problem with spending.  We’ve let our obsession with purchasing things get out of hand.  Our collective materialistic nature was over-indulged in the heyday of easy lending.   Loose oversight on mortgages, home flipping,  and easily-procured home equity loans meant lots of people were rolling in cash.  What did they do with it?  Spend spend spend!

We got used to buying stuff.  Lots of stuff.  But now the country has sobered up, lending rules are tighter, and debt is catching up to a lot of people.  It’s harder to get a credit card, harder to get a loan, and bills keep mounting.

Don’t Be Late With Your Tax Bill!

So when it comes to your tax bill with the IRS, some people are in a jam.  If you owe money to Uncle Sam after filing your Federal income tax return, what happens if you can’t pay your tax bill?

Well your credit score is affected for one.  If you still care about getting future loans, buying a home with a mortgage, or getting credit cards then yes your credit score still does matter.  It even affects what mortgage rate you’ll get when you’re finally ready to buy a home.  Having a low credit score will cost you money in the long run.

For another, the IRS will charge you more money too.  You’ll be assessed late fees and penalties for not paying your taxes or for paying your taxes late.

Get an IRS Payment Plan

So what’s a person to do?  Get an IRS payment plan, that’s what.  The IRS doesn’t necessarily want you to get into trouble with the credit reporting agencies and ruing your financial life.  They want to work with you so they get their money and you come out unscathed.  That’s why they have payment plans, also called installment plans.

There Are Two Types of IRS Payment Plans

There’s an IRS installment plan, which is essentially a loan from the IRS that can last as long as six years.  Of course, you’ll be paying interest and fees but far less than if you don’t work out any IRS payment plan at all.

Then there’s a four  month plan, or 120 days.  You pay off your tax ill in that amount of time and of course since it’s a shorter time frame you get charged less interest and no fees.

Let’s take a look at both.

An IRS Installment Plan

If your IRS debt is less than $50,000 you can work out an IRS installment agreement with them.  The Online Payment Agreement Application is available on the IRS website here.  You’ll need your bank account information so you can set up automatic payments with the IRS.

Here are your options for paying on an IRS Payment Plan:

  1. This IRS payment agreement will cost you $52 to set up direct withdrawal from your bank account
  2. …or $105 to have it automatically taken from your paycheck
  3. If your income is low enough, the fee is reduced to $43.  Use IRS Form 13844 Application For Reduced User Fee For Installment Agreements.

You can set up your IRS payment plan on your credit card, too.

You can apply for an IRS Payment plan by going online via the link above, by calling the IRS at the number on the bill you got from them, or by filling out the paper form, IRS Form 9465 Installment Agreement Request

Get 120 Extra Days to Pay Your IRS Bill

If you think you just need some extra time to come up with the money for your tax bill, you can enter an IRS agreement plan for 120 extra days.  That’s four months to get your money together.  You aren’t charged any fees for this agreement but you still get penalties and interest.

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Form 1040 Instructions

I’m glad you’re curious about IRS Form 1040 and its instructions.  That means you’re at least considering doing your own taxes?  Or maybe it means you want to understand the income tax?  Or you want to check something your accountant said or did…whatever the reason hooray for you!

What is the Form 1040?

Well it’s the form used by American taxpayers to file their federal income tax return every year.  Actually there are 3 versions of the 1040; a simple one, a medium one, and a complex one.  Goldilocks would feel right at home.

If you do your taxes with online tax companies you’ll basically be filling out one of the three versions of the 1040, with the Form 1040 instructions built into the software.  You answer questions based on rules spelled out in the 1040 Instructions and the software fills out the form for you.  Some people like to fill out the paperwork themselves, and continue, old style, to fill out and mail paper tax forms.

How Can the Form 1040 Instructions Help me?

Even if you’re taking advantage of today’s wonderful tax software available from many different companies (TurboTax, TaxAct, H&R Block, etc) you still might be able to make use of the Form 1040 Instructions.  For example, you might not be totally sure of how to answer some questions.  Or you might not understand the implications of different answers.  Not sure whether to file married filing separately or married filing jointly?  The Form 1040 Instructions can shed more light on the matter.

Form 1040 Instructions Explain the Difference between 1040, 1040EZ and 1040A

Not that you have to know the difference if you’re just using software, since the program will choose the corrrect Form 1040 for you, but it’s actually a common question:

What form 1040 should I use?

OK the Form 1040 Instructions spell it all out quite clearly here.  They range in complexity from the very simple form 1040 EZ to the full long form 1040.  The 1040 A is somewhere between those two.

Basically it’s a matter of how many credits, deductions and exemptions you’re claiming.  If you claim almost nothing and you don’t have any dependents (aka kids) then you might be able to use the wonderfully short and simple Form 1040EZ.

You can be single or married filing jointly but no other filing status if you want to use the 1040 EZ.  You have to also be under 65.  Your interest income must be less than $1500 and your wages must be under $100,000.  You can’t owe any household employment tax for that nanny or maid you hired last Spring.  You can’t claim any deductions or credits.

Of course it’s not a problem if your tax life is so simple but you use the full Form 1040 anyway.  The IRS won’t care.

Other things the Form 1040 instructions Help you with

Some people just want to know if they have to file an income tax return…if you make under $9,750 (for 2013) then you don’t even have to file.  I guess the IRS figures you’re so poor they’ll let you off the hook for income taxes.  $9,750 is not considered income?  Not sure what the reasoning is.  But in any event, the form 1040 instructions are what give you the threshold amount for that tax year.

The Form 1040 instructions also give you line-by-line instructions, which is nice when you need more information.  With most tax prep programs, you can choose to look at your tax return just as it would appear on the actual IRS paper forms.  If you were unsure of something when you answered a particular question you can look up the corresponding line on the 1040 form and then go to the Form 1040 instructions to read more about how to fill in that line.

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