1040 or 1040A

[brickmanli]

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I've started to fill out my FAFSA worksheet and there's this item which asks if my parents are filling out the 1040 or 1040A. What is the difference? If they are eligible for both, which one is more advantageous?

I hope this is not a ignorant question, my parents and I are clueless on taxes. I'll provide any additional info if needed.

Thank you

 

[SMW]

1040 is the longer, more complcated form for people who want to itemize deductions. 1040A or EZ is the shorter form. People file the 1040 because it's to their financial advantage to list as many deductions as they're eligible for to lessen their taxes and/or get a bigger refund. If you don't have a lot of allowable deductions, then there's no point in filing it. Your folks will know which one they generally file. I don't think it will make any difference whatsoever for FAFSA purposes.

 

[mpp]

Not a silly question at all. The majoriy of people have trouble with their taxes because the tax code is friggin ridiculous.

There are three different standard tax forms:
1040EZ, 1040A, and 1040.

If your parents income (combined if they file jointly) is greater than $50,000 per year or if they itemize their deductions (which they probably should if they are paying off a mortgage on their home) they have no choice but to use Form 1040.

If you have income of less than $50,000 per year, and have earned less than $400 in interest (from money in a savings account) than you can use the simplest form 1040EZ.

1040A is something in the middle for those that have both interest income and income from dividends on stocks but do not itemize their deductions.

Let me know if you have any other questions and I will try and help. If you are looking for the general guide to income taxes, check out <a href="http://www.irs.gov/individuals/display/0,,i1%3D1%26genericId%3D15035,00.html" target="_blank">Publication 17</a> from the IRS on this web page. It's big so if you have a slow internet connection beware.

 

[Badgerbabe]

Hey mpp,
I hope you don't mind another question on this topic, but I have filed the telefile form every year since high school. This is the first year I am filing that my parents are NOT claiming me as a deduction, and I would like to get the tuition credit, as I pay for all of my tuition. (I did when my parents claimed me, too, but they got the credit.) Do I have to fill out the 1040A to get this credit? From the brief research that I did, it looks that way, but I am pretty lost when it comes to taxes. Anything else I ought to know when filing for myself?
Thanks!!!
Shannon

 

[mpp]

To claim the education credit you must use 1040A and also fill out form <a href="http://www.irs.gov/pub/irs-pdf/f8863.pdf" target="_blank">8863</a>. Form 8863 will explain how to calculate the amount of credit you will receive.

If you paid back any student loans last year, the interest would be deductible from your income (provided the loan is less than 5 years old). This will be a line under the Adjusted Gross Income section of the 1040A and no extra form is needed. Your student loan provider should mail you a statement of interest paid last year before January 31, 2002.

Be sure you understand the difference between a credit and a deduction. A deduction only reduces your taxable income. A credit reduces the amount of tax you owe (or increases the amount of your refund) dollar per dollar. If you are in a low tax bracket a $100 deduction will only net you a $15 gain while a $100 credit will net you $100.

Good luck and let me know if you have any more questions.

 

[SMW]

mpp, how do you know all this stuff? Can we all come to you for business advice when we set up our practices? 😀

 

[Badgerbabe]

Thanks mpp, you are AWESOME!
Shannon

 

[merlin]

I think the only form you can use if you have any type of capital gain/loss is the 1040. Believe me, that was one painful form.

 

[mpp]

You can use the 1040A even if you have capital gains. However, certain capital gains (investments over five years old or basically anything that qualifies for the 28 percent capital gains tax) require you to use 1040.

 

[YBee]

Everyone on the Senate finance committee (and actually every @#%$#@ member of Congress) should be required to complete his taxes w/o the use of a trained preparer. That would get the tax code cleaned up in a hurry!

 

[mpp]

And the scary thing is that some people in this country want these bureaucrats to regulate a system of socialized health care...imagine the mess there would be in that.

 

[YBee]

just trying to imagine it makes me feel a little crazy. 😱