For those who may not be familiar with the processes of paying income taxes, particularly first time taxpayers, questions on Form 1040 and its variants arise. Examples of these questions are: “What is the difference between Form 1040 and Form 1040A?”; “Where is income based if Form 1040A is used?”; “Why should they file Form 1040A?”; and “Who are eligible to file Form 1040A?”
Form 1040A is the shorter and simpler version of Form 1040, thus its nickname “short form”. It is more commonly used when the tax situation of the individual is uncomplicated. On the other hand, Form 1040 or the U.S. Individual Income Tax Return, is the long form which usually contains more information such as itemized deductions, no capital gains, etc.
Those who use Form 1040A can only have their income from sources such as salaries, wages, tips, interests, dividends, pensions, annuities, taxable scholarships and grants, capital gains distribution, compensation from unemployment, railroad retirement benefits, taxable social security and the Alaska Permanent Fund dividends.
On the question why a taxpayer should file Form 1040A, the simple reason is because it is easier and shorter to fill out than the standard Form 1040. It is also faster to prepare and the IRS processes it faster than the other forms. Others prefer it because it covers more tax credits and deductions than Form 1040EZ.
For the last question on the eligibility of Form 1040A filers, there are 6 conditions to be met to qualify. First condition is that the income should come only from the above mentioned sources. Second, the taxpayer should be claiming adjustments to income. These adjustments should be college tuition and fees, interests of student loans, IRA contributions deductions and classroom expenses. Next condition is if the taxpayer is claiming only the standard deduction. The fourth condition is if the taxable income is more than $100,000. Fifth is if the taxpayers is claiming tax credits such as child and dependent care expenses, child tax credit and additional child tax credit, earned income credit, Hope and Lifetime Learning education credits, credit for disabled and the elderly and retirement savings contributions credit. Last condition that the taxpayer have not exercised any incentive stock option.
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