It’s tempting to use the (almost always) free and super easy tax form choices – 1040EZ and 1040A – but using them could make your tax bill higher than it needs to be.
If you have a very simple tax situation – single, no kids, a W-2 job, a little interest income, for example – it could make sense for you to use the EZ form. For slightly more flexibility and just a little more effort, you could file a 1040A… as long as you don’t have business or rental income, and don’t want to itemize deductions.
To take advantage of every possible tax credit and deduction, use the full-blown Form 1040. Yes, it’s more work, and there are more lines to fill out. But it’s your best chance of shrinking your tax bill down to the very minimum.
Still not sure which form you want to use? Here’s everything you need to know to make your choice.
1040EZ
Not everyone can use the very brief, single-page 1040EZ form – and not everyone should. Basically, if you have a very simple income and tax situation, this is the form for you.
To qualify to use 1040EZ, you…
- Must file as single or married filing jointly
- Can’t claim any dependents
- Can’t claim any adjustments to your income (like IRA contributions or moving expenses)
- Can’t earn more than $100,000 in taxable income
- Can’t earn more than $1,500 in taxable interest
There are several more rules – but these cover the big ticket items that keep people from using the EZ. You can find the full list of requirements here.
1040A
More people can use the 1040A than the EZ, but it still has limitations. Also, while using this form expands the number of credits you can take, it still limits your options when it comes to tax deductions. Plus, if you have a business or rental properties, you can’t use this form.
In order to use 1040A, you…
- Can’t earn more than $100,000 in taxable income
- Can’t itemize deductions (like mortgage interest and medical expenses)
- Can only claim some adjustments to your income (like student loan interest but not moving expenses)
- Can’t owe household employment taxes for an employee (like a nanny)
There are a few more rules limiting who can use the 1040A, and you can find them all here.
1040
Anyone doesn’t qualify to use a 1040A or EZ has to use this form…but that can be a good thing. When you use Form 1040, you have access to every possible reduction, deduction, and credit – and that gives you the best chance of paying the lowest possible tax bill.
With the 1040, you basically get to customize your tax return. You can choose to itemize your deductions, or stick with the standard. If you have a business – and that includes doing some freelance work on the side of your regular job – you can claim business expenses.
Most tax prep programs take the worry out of using the Form 1040. Most will walk you through your return, making sure you don’t miss any credits or deductions you’re entitled to. (We’ll talk more about those programs very soon.)
Bottom line: To reduce your tax bill to the absolute lowest it can go, take on Form 1040. And if you have questions, I’m here with answers.