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The 1040A: box-by-box

No matter how hard you try, you just can't file the 1040EZ form this year.

Don't be too upset about losing the option to file the easiest tax return. Your tax chore still might not be too bad if you can file the next step up: Form 1040A.

Yes, the 1040A is longer. But it could get you a couple of extra tax breaks. So let's get started, box-by-box.

Label
If you received a tax package from the IRS with a peel-off label, just stick it on here. If any of the information is incorrect, make the corrections -- clearly -- directly on the label.

If you didn't receive a tax package, fill in all the information requested. Remember, joint filers must include both husband's and wife's information.

And don't forget your Social Security number (numbers, for married couples) in the boxes provided at the upper right-hand corner of the form. Even if you're married and decided to file separately, you must enter your spouse's tax ID number underneath yours. And make sure your entry is correct. The IRS won't process a return that's missing a Social Security number. That could mean penalty and interest payments for you.

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You also get the chance to give $3 to the Presidential Election Campaign Fund. It doesn't matter if you (and your spouse) check "Yes" or "No." It won't affect your tax either way.

Filing status
Now on to filing status. Here, unlike the EZ, you get all the Internal Revenue Service status options on lines 1 through 5: single, married filing jointly, married filing separately, head of household and qualifying widow or widower with a dependent child.

Each status has specific requirements and offers different tax advantages. Also, the standard deduction amount is different, as are the final tax amounts due. So review your status and pick the one that fits your needs and gives you the best tax result.

Exemptions
Next, let's start cutting away at your impending tax bill.

The exemptions section of the form (line 6 and all its sublines below) tells the IRS how many people depend on you for support. Technically, if you're married filing jointly, your spouse isn't your dependent. But when you file, each of you is counted as an exemption, so check boxes 6a and 6b. Later in the filing process, this will help reduce your taxable income.

Your dependents are, in most cases, people who live with you. But there are instances where you can provide substantial support and claim a person as a dependent even if they lived elsewhere.

It's important to accurately claim dependents so that you get the full benefit of the exemptions. The IRS also will check to ensure your dependents are valid. To that end, the agency requires you to enter their names on line 6c, along with their Social Security numbers and relationships to you.

On the extreme right, you'll see several lines regarding your dependents. Enter the appropriate numbers on each line. At line 6d add these up and put the total in the box. This is the number you'll eventually multiply by $3,050 and subtract to get your taxable income amount.

Income
Now to the main reason the IRS wants any return from you: Just how much money did you make last year?

To make these monetary entries a little easier (on you and the tax examiner who'll be reviewing your return), the IRS allows you to round off cents to whole dollars. Drop amounts under 50 cents to the last dollar and increase amounts from .51 to .99 to the next dollar. If you round off one entry, you must round off all entries.

Wage income
On line 7, most of us enter the dollar amount from the W-2, Wage and Tax Statement, we got from our employer. If you had several jobs, you should have a W-2 for each. Add the salary amounts from all and put the total here.

Any other income you made, even if you didn't get a W-2, also goes here. This includes, but is not limited to, wages as a household employee, any tip income you weren't required to report to your boss, allocated tips, dependent care benefits, employer-provided adoption benefits, certain scholarship and fellowship grants and disability pensions. Much of this "other" money will be reported to you (and copied to the IRS) on various other forms, usually with 1099 somewhere in the title.

Don't overlook this "other" income. The IRS certainly won't and will come asking if your income amount is less than what's reported by your various employers and other sources.

And don't forget to attach copy B of all your W-2 forms in the space indicated on the return.

Interest income
On line 8 you report what you earned in interest. The IRS wants to know about all of it, even if you don't owe taxes on it.

Taxable interest amounts, generally from bank accounts and similar savings instruments, go on line 8a. This money usually is reported to you (and the IRS) in box 1 of the 1099-INT form sent by your financial institution. If your total exceeds $1,500 then you'll have some more paperwork to complete: detailing your earnings on Schedule 1. But if the interest is less than that, just enter it on line 8a.

If you got any tax-exempt interest, again usually delineated on financial statements, put that on line 8b. There's no threat of an extra form for this money, regardless of the amount.

Dividend income
If you received ordinary dividends, you'll get a 1099-DIV showing the amount in box 1a. That amount goes on line 9a of this tax return. If the total is more than $1,500 or if you received ordinary dividends as a nominee (that is, they were registered in your name but the actual money belonged to someone else), you must fill in and attach Schedule 1, Part II.

Because of tax-law changes last May, you'll see a new line on the 2003 Form 1040A. The new line 9b is where you'll enter qualified dividends; these will appear in box 1b on your 1099 statement. Qualified dividends now are taxed at 15 percent (or 5 percent for taxpayers with lower incomes). Details on what constitutes a qualified dividend can be found on page 25 of the Form 1040A instructions.

You'll also notice that the area on line 9b where you enter qualified dividends is inset, meaning that this amount is not included when you total your income in a few more lines. Don't worry; the IRS will get back to it. You'll have a special worksheet to account for these earnings and to ensure that you pay the appropriate, lower tax on them.

Capital gains distributions
Investors who received taxable capital gain distributions but had no other capital gains transactions to report can now file the 1040A. Simply put the distributions amount shown on your fund or broker statement on line 10a. (If your 1099 statements report nontaxable distributions that you must report as capital gains, you can't use this form; you must file the longer Form 1040.).

You'll also see a new line 10b on the form this year. Those tax-law changes that affect your dividends also apply to capital gains. In this case, capital gain distributions received after May 5, 2003, are taxed at 15 percent instead of 20 percent (or, for lower-income investors, 5 percent instead of 10 percent). As with qualified dividends, the amount of your eligible distributions will be tallied on the separate tax computation worksheet.

Individual retirement account money
If you took money from an individual retirement account, you report it on line 11, a and b. This is from any IRA -- traditional, Roth or a self-employed IRA plan. You should have a 1099-R showing the amount distributed and whether it was taxable or non-taxable. Don't overlook that taxable amount entry on the "b" portion of line 11; it's not always the same as the total distribution.

Pension payments
As with IRA distributions, the IRS wants to know about any pension and annuity payments you received. These, too, will be reported on a 1099-R form.

If your pension or annuity is partially taxable but your 1099 doesn't show just how much, follow the instructions in IRS Publication 939, General Rule for Pensions and Annuities, to determine the taxable part. Once you've computed that figure, it goes on line 12b and the total payment on line 12a.

Additional income
Line 13 covers income from two very different, but common, sources:

  • Unemployment compensation: You must pay federal tax on unemployment benefits. The paying agency should have sent you a Form 1099-G showing the amount paid to you for the year.
  • Alaska Permanent Fund dividends: Since 1982, Alaska residents have received an annual payment from their state as their share of oil sales. This amount is reported here.

Add them up and put the total on this line.

Social Security
If you received Social Security payments, you should have received a Form SSA-1099. Some of these benefits may be taxable. This also is where you would report Railroad Retirement Board payments, detailed on Form RRB-1099.

To determine just how much of your Social Security or railroad benefits are taxable, use the worksheet on page 29 of the 1040A instructions.

Note that for lines 11, 12 and 14, the "b" portion -- the taxable amount -- is entered on the far right so it can be added up at the bottom of the page. Be sure that's the number you put in this right column; not the "a" figure, which includes any non-taxable payments.

On line 15 you put the total of lines 7 through 14b. This is your total income.

Adjusted gross income
This total income amount, however, is not what your tax bill is based on. Rather, you use your adjusted gross income to figure your taxes. This next section is where you actually make those adjustments.

Educator expenses
Line 16 is a tax break for teachers and other public and private school employees who spent their own money on classroom materials and supplies. Up to $250 of qualifying purchases may be claimed here. If both you and your spouse are teachers, you can claim up to $500, but only if each of you spent the maximum credit amount. If you spend $300 and your spouse spent $200, your deduction is $400.

Individual retirement accounts
If you contributed to a traditional individual retirement account, part or all of it may be deductible. Line 17 is where you report -- and subtract -- that amount. Use the worksheet on page 30 of the 1040A instruction booklet to calculate the amount of your IRA deduction.

Remember, it's only a traditional IRA that offers the possibility of a deduction. You can't deduct contributions to a Roth account or any company retirement plans, such as a 401(k) plan.

Student loan interest
For 2003 returns, you get to deduct up to $2,500 you paid in interest on a student loan. The loan must meet certain guidelines, primarily determined by your income and what the loan money was used for. Check out the 1040A instruction booklet for the requirements, as well as the worksheet on page 31 to figure out the exact amount to enter on line 18.

Tuition and fees
If you continued your education but didn't have to go into debt to do so, line 19 offers you a way to write off some of your schooling costs. You can claim here up to $3,000 in eligible tuition and fees. As with the student loan deduction, there are limits.

And if you claim the Hope or Lifetime Learning tax credits to pay some school costs for a student named as a dependent on your return, you cannot use the tuition and fees adjustment for that same student. Similarly, you can't use this deduction on expenses you already paid with tax-free scholarship, fellowship, grant, or education savings account funds, such as a Coverdell education savings account, tax-free savings bond interest or employer-provided education assistance. Uncle Sam doesn't like taxpayers double-dipping in the tax-break pool.

Adjusting your income
After taking your available adjustments on lines 16 through 19, enter the total on line 20. This figure, when subtracted from your total income amount on line 15, gives you your adjusted gross income, which you enter on line 21.
AGI is the key to many other tax steps. It determines whether you get certain credits or can use the full value of exemptions.

Tax, credits and payments
Most importantly, your AGI is the starting point (yes, the starting point even though you've now moved to the form's second page) for figuring your taxable income. You want to get your taxable income as low as possible, because the less you have, the smaller your tax bill.

To begin this whittling process, take your line 21 AGI amount and re-enter it on line 22.

Elderly and blind credits
Taxpayers who are 65 or older or visually impaired of any age need to take care to check the boxes on lines 23a. There is one for each spouse for couples filing jointly. And don't forget to enter the number of the boxes you check in the larger box to the right. If you are able to check the boxes, you'll get a larger standard deduction.

Conflicting spousal deductions
If you're one of the small group of taxpayers who is married but files separately from your spouse, don't overlook line 23b. You'll need to check this box if your spouse itemizes on his or her separate return, because that choice means you can't take the standard deduction; the IRS requires you to enter zero as your standard deduction amount on the next line.

In this case, you might consider itemizing yourself so you'll have the chance to get at least some deductions. If you do, you can stop reading now and head over to Bankrate's discussion of the long Form 1040 and Schedule A because that's what you'll have to file.

Standard deduction
If you can use the standard deduction, the amount for your filing status goes on line 24. For 2003 returns, single filers can deduct $4,750; married couples filing jointly or qualifying widows or widowers get $9,500; heads of households get $7,000; and married filing separately taxpayers who both opt for the standard deduction are allowed $4,750.

You have to use another instruction book worksheet (page 33) to figure your standard deduction if you checked any of the line 23 boxes or if someone can claim you (or your spouse if filing jointly) as a dependent.

Once you've found the correct standard deduction, subtract it (line 24) from line 22 and enter the amount on line 25.

Exemptions
Next, you get to take tax advantage of all those people who depend on you. Multiply the number of exemptions you entered on the front page (line 6d) by $3,050. That amount goes on line 26.

Taxable income
When you subtract line 26 from line 25, you'll have your taxable income. It goes on line 27. If you have lots of exemptions and the math results in a negative number, enter zero. That means you have no taxable income.

But don't stop. If you had taxes withheld, you must file a return to get that money back. And there are some special tax credits further down the form that may even get you a refund check. We'll discuss them shortly.

First, let's deal with those filers who aren't as lucky as you and do have a tax bill.

Tax due
The IRS gets down to the collection business on line 28. If you, like most filers, entered a dollar amount on line 27, go to the Tax Table beginning on page 58 of the instruction book to find your tax due and put that amount on line 28. This should be sufficient for most filers. A few, however, will have to fill out additional forms and worksheets.

This is the case if you find you might owe the alternative minimum tax. This parallel taxation system was designed 35 years ago to ensure that wealthy taxpayers didn't use loopholes to escape paying their fair share of taxes. However, many middle-class filers find they owe the AMT, in large part because the system isn't indexed for inflation. Check page 34 of the instructions; if you find you must figure the AMT, you'll have to use the worksheet on page 35.

You'll also have to use a worksheet (the one on page 34) if you had qualified dividends or capital gains distributions. But this extra paperwork should help cut your taxes, rather than add to them. This is where you use the amounts you entered on lines 9b and 10b and figure their taxes at the new lower rates.

Now on to tax credits. Credits are a great tax break. You subtract them directly from the tax you owe (line 28). If you have enough in tax credits, you could cut your tax bill to zero. And a couple could get you a refund even if you owe no tax.

Child and dependent care credit
First on Form 1040A come the credits that can wipe out your tax bill. One of these is the credit for child and dependent care expenses, used generally to help offset what you paid someone to care for your young child, any other dependent or a spouse who couldn't care for himself or herself. To determine if you're eligible to receive this credit and how much it will be, you'll need to fill in and attach Schedule 2. If you can use this credit, the amount goes on line 29.

Elderly and disabled
You may be able to take the credit for the elderly or disabled if you are 65 or older or retired on permanent and total disability. If so, you'll need to fill out Schedule 3 and enter this credit amount on line 30.

Education credits
The IRS offers two education tax breaks: the Hope Credit and the Lifetime Learning Credit. If you're eligible for either (or both), you enter the amount on line 31.

The Hope Credit can reimburse some schooling costs for you, your spouse or a dependent. There is one major limit. Only expenses for the first two years of post-secondary education are eligible.

The Lifetime Learning Credit, however, lives up to its name. It covers college juniors, seniors, graduate students and even adults returning to college. In fact, you can take this credit to help offset the cost of a non-college course you take that's designed to help improve your job skills.

Education tax credit specifics are in Form 8863, which must be filed with your return to claim these credits.

Retirement saver's credit
Next on 1040A is the retirement savings contributions credit, a tax break designed to reward lower-wage earners who contribute to retirement accounts. An eligible filer could use the credit to reduce his tax bill by as much as $1,000. The actual tax break depends upon a worker's income, filing status and just how much he puts into a retirement plan. Basically, the lower the income, the bigger the credit.

Of course, any offer of a smaller tax bill generally involves a bit more work on the taxpayer's part. To see if you can claim the saver's credit, check out page 36 of the instruction book. If you're eligible, you'll need to complete Form 8880 to determine the amount to enter on line 32 of your 1040A.

Child tax credit
The child tax credit, worth $1,000 per youngster, is one of the easiest tax breaks to get. You claim it directly on your tax return, no added forms to file.

OK, it's not that easy. There are eligibility requirements, including income thresholds and dependency requirements for your kids.

And if you're one of the nearly 24 million parents who got an advance payment of this credit last year, you have a little more work to do on your 2003 return. The credit you can claim on line 33 of your Form 1040A must be reduced by your advance payment amount. So if you got a $400 advance payment last year, you can only claim $600 on your return this year. You're not being shorted: Your total credit still is $1,000 -- you just got it in two payments, once in the early check and again on your return.

On pages 37 and 38 of the 1040A instructions, you'll find additional details on filing for the child tax credit and the worksheet to figure the amount to enter on your 2003 return.

Adoption credit
If you became Junior's proud parent thanks to adoption, up to $10,160 of those costs may be credited on line 34. Fill in and attach IRS Form 8839 to claim this tax break.

Getting full credit
Add credits on lines 29 through 34 and enter the sum on line 35. Subtract that amount from your tax due on line 28 and put the result on line 36. It's possible you could have more in credits than you owe in taxes. These credits, however, are nonrefundable; that is, they will only take your tax bill down to zero. If that's the case, enter zero on line 36.

Advance earned income credit
Some taxpayers are eligible for the earned income credit. This is a tax break for workers who don't earn much.
Rather than waiting to collect this credit at tax-filing time, some employees get their credit amounts early as wage supplements. In these cases, the advance earned income credit amounts are reported on their W-2 statements and should be entered on line 37.

Total tax
The advance payments then are added to line 36 to get your total tax due. That amount goes on line 38.

Now to determine what you've already paid Uncle Sam -- and possibly get money back from him!

Tax withheld, estimated
As you know from looking at your paycheck, you've already sent the IRS a good chunk of money through payroll withholding. This annual amount is reported on your W-2. Put that figure on line 39.

If you also got income that was reported on any type of 1099 form and taxes were withheld from those earnings, be sure to add it to your W-2 amount above.

And if you paid estimated taxes (Form 1040ES) throughout the year, that total goes on line 40.

The earned income credit (again)
If you didn't get advance earned income payments but are eligible for this credit, you take it now on line 41. Check out the 1040A instructions (pages 40 to 44) for details on the credit and a worksheet to figure your exact amount. You may be able to get a tax refund if you qualify for the EIC even if you owe no tax.

More kid credit
The same money-back potential is available on line 42 with the additional child tax credit. Use Form 8812 to figure out if you can claim this extra credit.

Now add lines 39 through 42 and put the result on line 43. This lets the IRS know your total tax payments.

Refund
If line 43 is more than your tax due shown on line 38, you paid too much. Put that amount on line 44. As soon as you complete this form, the IRS can get busy processing your refund check.

Most people want all of their refund immediately, but the IRS asks on line 45a just to be sure. Put here the amount of your overpaid taxes you want back.

The IRS encourages you to get your cash via direct deposit instead of a mailed check. If that appeals to you, you need to enter your account information on lines 45b, c and d. These are the spots for your bank's routing number, your account type and your specific account number. If you have any question about what goes here, check with your financial institution.

Just in case you decided a few lines earlier not to take all your tax refund, the IRS asks on line 46 if you'd like to have part of it applied to this year's estimated tax payments (more on this later). If so, put the amount here. Make sure that's what you want. You can't change your mind later and ask for it back.

Amount you owe
If you weren't able to fill in lines 44 through 46, sorry. That means you owe tax.

Find out just how much by subtracting line 43 from line 38. Enter the difference on line 47. If the amount is under $1, then Uncle Sam says "don't bother." For anything more, though, the IRS will be expecting your payment, either by check, money order or credit card.

Estimated tax penalty
Before you can wrap this up, the IRS wants to make sure it got all it was due, when it was due. The system is pay-as-you-go, meaning you can't hold onto all your earnings until April and then send the IRS one big tax payment. That's the reason for paycheck withholding.

Some people, however, get cash during the year without having any taxes taken out. In these cases, quarterly estimated tax payments are made. If you don't pay enough to cover what you earned in each period, you could owe a penalty.

That's generally not a problem if line 47 shows you owe $1,000 or less. But just to be sure, check out page 52 of the instructions to see if you have a penalty to pay on line 48.

Third party designee
Hang on. We're heading down the home stretch. The next section allows you to name someone else to handle any questions about your return.

By checking the "yes" box, you allow the IRS to contact your tax pro, your mom, your cousin the CPA or anyone else you want to solve problems related to your return. You are not authorizing your appointed representative to receive your refund check. Neither can he or she bind you to anything regarding your tax return.

Details on naming a designated tax representative can be found on page 52 of the form's instructions.

Finishing touches
We're almost done. Sign and date the form and don't forget to enter your occupation and daytime telephone number. Both husband and wife must complete this section for a joint return.

Since you've read this far, you probably didn't pay a pro to fill out this form. But if you did, he needs to complete the box just below your signature.

Finally, pop your 1040A, along with any necessary attachments (and check if you owe), into the mail. Mission accomplished!

Michele Erbrick assisted with this report.

-- Updated: Feb. 6, 2004

 

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See Also
1040 box-by-box
1040EZ box-by-box
More tax form stories
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