Recently I wrote a post on making sure that you take your student loan interest tax deduction, and now I’m doing a follow-up to that post on general tax information and filing for your tax refund. One thing I find important to remember is that when you are deducting a certain dollar amount from your taxable income, you will NOT get all of that money back. Just because you are deducting $2,500 for student loan interest you are not going to get that whole $2,500. You are simply lowering the amount of income that can be taxed. So if you are in the 15% tax bracket, you will get $2,500*15%= $375 which is still a hefty amount. If you are in the 25% tax bracket, you will get $625. Most likely you will end up somewhere in the middle of that, and this same logic applies to other deductions as well.When it comes to choosing the right tax form to list your deductions on, this all depends on your individual situation and might actually be easier than you think. There are three separate tax forms to choose from, and listed in order from “easiest” to “most complicated” they are: 1040EZ, 1040A, and the 1040. I’m going to go over the conditions where you would choose each form and what sort of deductions/credits you would be looking at by choosing each form when filing your taxes.
• Your taxable income should be below $100,000
• You are filing single OR married filed jointly
• You should be under the age of 65
• No dependents
• Interest income should be $1,500 or less
• You will just be claiming the standard deduction of $6,100 (for 2013 tax purposes)
• You can still claim the following tax credits: Child care credit, Credit for the elderly, American Opportunity credit, Lifetime Learning credit, Retirement savings contributions credit, Child tax credit, and the Earned income credit
• Your taxable income should still be below $100,000
• You also now have capital gain distributions
• You are going to be claiming tax credits
• You can claim adjustments for IRA contributions
• You can claim adjustments for student loan interest
• You can still claim the standard deduction
• You can still claim the tax credits that you could in the 1040EZ
• Your taxable income is $100,000 or more (it can be below)
• You will now be itemizing your deductions (mortgage interest and others)
• If you are reporting self-employment income or have income from selling property, bonds, or stocks
• Everything from the above two forms still applies
Most people will end up using the 1040A form, as this should cover most needs. If you are a single person and know you won’t be taking any sort of deduction or credit, the 1040EZ is the way to go. If you have a mortgage or are going to be needing to itemize your deductions then the 1040 form is your choice. If you are unsure of what to use, you can always go with the 1040 form as this will cover all your needs. Just remember that most people will not end up needing this form, and it could complicate things more than necessary for you.
Most tax software (even the free ones) will ask you some basic questions about deductions, credits, etc to make sure that you are using the correct form so that you can get the most money back and the largest possible deduction. It’s good to be aware of where each form fits in though, in case the software misses something that you could have taken advantage of and double-check that your return is accurate. Remember that for your state filing there may be other special deductions and this guide deals only with federal filings. It’s also important to do your own research and check as many sources as possible – this is your money we are talking about here!
What form do you normally use when it comes to filing your taxes? Do you expect to use the same form this year?