Starting a Home Based Business

Posted on: 4 April 2018

Tax forms are confusing for most Americans who must deal with them. But understanding the basics of your personal income tax return will help you ensure an accurate filing and the lowest tax bill. 

To help you get started, here are the five most common tax forms that affect your tax bill in the largest ways.

1. Form 1040

This is your annual personal income tax return. It comes in three varieties based on how many forms of income or credits you report. The three types of Form 1040 are:

• 1040EZ. This is a one-page form that is ideal for those whose income is only from wages and small interest and who are filing without dependents. 
• 1040A. This form is a step up from the simplest version. It includes a few more credits and deductions, including the child tax credits and the earned income credit. 
• 1040. The full form covers all personal income tax situations. If you have self-employment income, itemize your deductions, or are a high earner, you must use it. 

2. Form W-2

Form W-2 is one that most people are familiar with; although, they may not know much about it. This is the informational form that is issued by your employer each January to report your income (both federal and state) and benefits. You must have all Forms W-2 from all employers before filing your income tax returns.

Box 12 shows benefits you received, including employer-based health insurance, HSA contributions, and retirement plan contributions.

3. Form W-4

If you want a larger refund or a smaller tax due in April, Form W-4 is how you adjust that. This IRS form allows you to change the size of the money withheld from your paycheck to pay your income taxes. You may change the elections on this form with your employer at any time and for any reason. Reduce the number of digits in the "allowances" box to increase withholding and add to the digits to have less withheld. 

4. Form 1099

Form 1099 is actually a category of forms that report income earned other than wages.  Form 1099-MISC comes from self-employment work. Form 1099-R are withdrawals from retirement plans, and SSA-1099 reports Social Security benefits. There are specific 1099 forms that also report such things as cancellation of debt, interest, stocks and bond sales, and money you got from selling your home. 

5. Form 1098-T

Form 1098-T is available from your or your dependent's college or university. Basically, it shows how much you paid to the school and how much was received in grants and scholarships. Use this form to claim valuable education tax credits.

These five forms represent the majority of what many taxpayers need to report their income and claim important tax benefits. For more help understanding your specific forms and collecting them in a timely manner, talk with a professional tax preparer, such as The Callen Accounting Group, PLLC, today.