Many people dread tax time, but it might be more tolerable if you file with a form that is best suited to your circumstances. The 1040EZ and the 1040 are two of three forms available to taxpayers. Your current financial situation, potential tax savings and ease of preparation are some factors that will determine the form you choose.
Form 1040EZ is the simplest tax form available for individual taxpayers. You qualify to file your income tax return with this form if the following applies to you: you are 65 or younger, single or married and filing jointly, and you have no dependents; you earned less than $100,000 last year, don't owe taxes on any payments you made to household employees and are not in Chapter 11 bankruptcy; any income on interest from the past year does not exceed $1,500, and any tips are included in boxes 5 and 7 on your W-2; and you will not claim adjustment to income or credits other than earned income credit.
Form 1040 allows users to report all types of income and expenses. Anyone can file taxes with this form but it is required if the following applies to you: your taxable income is over $100,000; you have income from sources like unreported tips, shareholder dividends and self-employment; you owe taxes on payments made to household employees; and you itemize deductions or claim tax credits.
Advantages and Disadvantages of Form 1040EZ
With just one page, Form 1040EZ is the shortest form available to filers. It contains basic tax questions designed to determine whether you owe taxes or are due a refund. Taxpayers spend less time preparing their taxes with this form because of its brevity and the straightforward nature of the questions. However, this form does not allow taxpayers to claim tax breaks, credits and deductions, except the earned income credit for low-income filers. Ensure that you are not eligible for these benefits before you file this form, to avoid paying more taxes than necessary.
Advantages and Disadvantages of Form 1040
Form 1040 provides taxpayers with the opportunity to claim every tax break, credit and deduction for which they qualify. This reduces the amount of tax you need to pay. However, the inclusion of calculations for every tax break makes the form complicated and long and increases the amount of time necessary to complete it.
The tax form you used previously does not determine what you file in the future. When your situation changes, you can file the form that is most appropriate for you. All tax forms for individuals use the same tables to calculate tax liability. A third form, 1040A, allows the taxpayer to claim several credits that the 1040EZ doesn't.