Tax Basics: Form 1040

Today our focus is on the tax form 1040. You can take a look at our video below along with our summary and links to resources.

The form 1040 is the main individual tax return form. Everything that an individual has will flow onto this form. It's only two pages so at first it does not seem very complicated, but there are a lot of schedules and calculations that go into the two pages. As a side note the form 1040 has had many changes in the last year with the Tax Cuts and Jobs Act. There have been changes in deductions and income that is excluded. These changes won't be covered in this article, instead I will discuss them as we go over each item on the 1040 in other posts/videos. So let's dive into the first page.

The front of the 1040 begins by collecting your personal information and that of your spouse and dependents if applicable. Note that depedency exemptions are disallowed for the next 8 years, however your dependents could qualify you for some other tax benefits. You will also identify your filing status. Then you will list all of your income (except income that is excluded). The deductions that take place on the first page mostly concern business expenses, although there are a few personal deductions as well (such as contributions to a qualified IRA account). At the end of the 1040 is your adjusted gross income or AGI. Your AGI is a very important number as it is used in many tax calculations regarding limitations of deductions. When talking about taxes and tax planning strategies AGI will come up often. It's important to understand how this number relates to other items on your 1040. These relationships will be covered in future videos that will discuss the individual items on the 1040. But for now we're going to cover it broadly.

The second page is where your more personal deductions are claimed. In particular your itemized deductions or standard deduction (whichever is greater). This year we will also see a 20% qualified business income deduction. The back of the form also takes into account nonrefundable credits (cannot push you into a refund) and your refundable credits (can push you into a refund). After those are accounted for you calculate your taxable income and tax due/tax refund.

It seems simple enough, but once you look at all of the lines of the 1040 and the schedules that accompany them you will see even a simple personal return takes some time and planning.

You can find form 1040, directions, and other information on the IRS website at the following link:

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