IRS Form 1040
Every person is required to declare the income he or she received during the prior year. The return may be filed jointly with a spouse, single, married filing separately or head of household. Simplified versions of the form 1040 are forms 1040EZ and 1040A.
In order to properly use either form 1040EZ or form 1040A, a taxpayer must meet a number of technical requirements. Below are the more common requirements:
Schedule A – When preparing a tax return, a taxpayer may reduce their taxable income by either opting to subtract a standardized deduction from their income, or to subtract specific tax deductible expenses from their income. If the taxpayer chooses to subtract specific tax deductible expenses, such as home mortgage interest, a percentage of medical expenses, etc. the taxpayer will use Schedule A to list and describe the itemized tax deductible expenses.
Schedule C – If a taxpayer receives income from self-employment, he or she may wish to offset their gross income by the expenses incurred to generate the income. By offsetting business expenses against gross business income the taxpayer will be able to reduce their taxable income, and consequently the overall taxes owed. Self employment income and expenses should be reported on Schedule C. If the taxpayer is operating the business as a corporation, partnership or limited liability company, the taxpayer may not use a schedule C, as business income and expenses should be reported on ether form 1120 or 1120 S for a corporation, or form 1065 for a partnership or limited liability company.
Schedule D – Almost all physical assets, whether it is for personal or investment purposes is considered a capital asset. If a taxpayer sells their physical asset for more than then they paid for it (minus any applicable depreciation), the taxpayer will be deemed to have received a profit form the sale. This profit is called a capital gain. If the taxpayer had sold the property for less than what they paid for it )minus any applicable depreciation, the taxpayer will be deemed to have incurred a loss from the sale, or a capital loss. There are many rules which specify when a taxpayer may subtract capital losses from income. For a more detailed explanation of these rules, please contact your tax preparer or accountant. Capital gains and losses should be reported on Schedule D.
Schedule E – When a taxpayer has income or loss from a trust, estate, real estate rental, royalties, an S-Corporation, or Partnership, this income or loss should be reported on Schedule E. Income from an S-Corporaton or Partnership must be reported even if the taxpayer has not received the income. There are many rules which specify when a taxpayer may deduct Schedule E losses against other income. For a more detailed explanation of these rules, please contact your tax preparer or accountant.
Schedule F – Schedule F, is very similar to Schedule C, noted above, except that Schedule F is used to report farming income and expenses, for self employed farmers. If the taxpayer is operating the farm as either a corporation, partnership or limited liability company, Schedule F should not be used to report income and expenses. Farming income and expenses should be reported on ether form 1120 or 1120 S for a corporation, or form 1065 for a partnership or limited liability company.
Schedule SE – Self employed individuals are required to pay self employment tax on their net business income. Generally speaking, if a taxpayer expects to owe less than $1,000 in total taxes, the taxpayer may pay the self-employment tax when the return is due. If a taxpayer expects to owe more than $1,000, the taxpayer is required to pay estimated tax payments on at least a quarterly basis. Although quarterly payments are the norm, a taxpayer may wish to pay more frequently in order to avoid a large quarterly payment, or if the taxpayer needs to demonstrate that payments are currently being made. Schedule SE is used to calculate a taxpayer’s self-employment tax, so that proper estimated tax payments may be made for the year.
