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Tax season is around and you must have been thinking that preparing taxes is a big game which you never want to loose and get stuck under loads of penalties and interests due to your unpaid tax bills or missed reporting deadlines.

In the US, Internal Revenue Service (IRS) publishes various tax forms for calculating and reporting federal tax obligations. Using these forms, different taxpayers need to report the required information to the department from time to time. There are over a thousand forms and schedules, which have been published, but to make it simple we are here to explain some of the most commonly used for an Individual tax payer.

  1. 1040: U.S. Individual Income Tax Return

This form is used for personal federal income tax returns filed by United States residents. It consists of two pages; the first page collects information about the taxpayer including name and address, SSN, filing status, dependents details etc. The next page reports income, deductions(itemized or standard), adjustments and credits, and figures the tax due after applying funds already withheld from wages or estimated payments made towards the tax liability. This is the first form you must be aware of or the starting point of your tax preparation. Other related forms in this category are 1040-SR and 1040-ES.

Form

Purpose

1040 This form is Annual income tax return filed by citizens or residents of the United States.
1040-SR This form is U.S. Tax Return for Seniors and is available as an optional alternative to using Form 1040 for taxpayers who are age 65 years or older.
1040-ES This form is Estimated Tax for Individuals and is used to determine and pay estimated tax by persons where income is not subject to tax withholding.
  1. Form W-2: Wage and Tax Statement

This is the Wage and Tax Statement provided by employers to employees detailing how much an employee was paid in a year. The form also reports about how much state and federal income taxes were retained, retirement plan contributions and the value of some workplace benefits. An employer has to mail out the Form W-2 to the employees on or before January 31. There are some other forms in this category, W-4, W-7 and W-2G.

Form

Purpose

W-2 This form is Wage and Tax Statement for salaried employees
W-4 This form is filed by employees to their employers to ensure that employer withholds correct amount of federal income tax from employees’ pay based on their personal and financial information.
W-7 This form is used to identify taxpayers who do not qualify for a social security number through application for IRS Individual Taxpayer Identification Number (ITIN).

 

  1. Form 1099’s: Income other than wages, salaries, and tips reported on Form W-2

Some of the commonly used forms under this category are listed below:

  1. 1099-B: Proceeds from Broker and Barter Exchange Transactions

You can expect to receive this form if you sell stocks, bonds, derivatives or other securities through a broker. This form is generally issued in January. It is used to report capital gains or losses from such transactions in the preceding year. The data from Form 1099-B helps you fill out Schedule D on your 1040 (and Form 8949 if needed).

  •  1099-DIV: Dividends and Distributions

You’ll receive a 1099-DIV form if some of the stocks you own pay dividends, or a mutual fund you invest in made a capital gains distribution to you during the year. This information goes to Schedule B of your 1040, and is required if either interest or dividends received during the tax year exceed $1,500 from all sources or if the filer had certain foreign accounts.

  • 1099-INT: Interest Income

Form 1099-INT reports most payments of interest income. You may or may not have to pay income tax on the interest it reports, but, you may still need to include the information from it on your return on Schedule B of 1040.

  • 1099-MISC: Miscellaneous Income

This form records the total amount of payments received from a single person or entity during the year you’ve provided services to them. The most common benefit of this form is to record your earnings when you work as an independent contractor. Other uses include a wide range of payments you receive, such as rent, royalties, prizes and awards and substitute payments in lieu of dividends.

  • Composite 1099 Form

Certain brokerage companies issue a “Composite 1099 Form” that replaces multiple individual 1099 forms like,

  1. 1099-B,
  2. 1099-INT, and
  3. 1099-DIV.

The individual sections of the composite form, sometimes may not include all of the information that is available on a standard 1099 form, such as the check boxes for short-term and long-term transactions on the standard 1099-B form. Rather, many of these composite forms simply group the different types of transactions so that one can easily tell the ones which are short-term and long-term.

 

  1. 1098: Itemized deductions/adjustments

The 1098 tax forms report payments or other contributions you have made that may be deductible from your taxable income. These forms will be received in the mail around tax time. Quick summary of most used forms under this category is given below:

Form

Purpose

1098 This form reports the interest that a taxpayer has paid on his or her mortgage. Mortgage interest is generally deductible for taxpayers who itemize their deductions, on first and second homes.
1098-E This form reports interests the taxpayer paid on student loans.
1098 -T This is a Tuition Statement which reports how much you paid in tuition for post-secondary education.

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Bottom Line


Don’t wait till the last minute. It is very important for you to understand the basic fundamentals of tax returns so that the details and exceptions become more manageable. Here is what IRS wants –Right Information – Right Manner – Right Time!

Tax prep is tedious, but there is variety of solutions available online which might help you to file your tax returns right away. There are tax calculation tools, return preparation software, and instructions and guides published by IRS to help you all through. But still if you are spending entire day taking decisions what to do with the forms you received in the mail box with terminologies getting over your head shaking your confidence whether your tax return is prepared properly. Do not worry, you are not alone. We have got the expertise to give the right solution to all your queries. So, save yourself from making a potentially costly mistake!

Please leave your comments if this information helps you in solving your tax puzzle.

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