25 July 2015

If you saw the Harry Potter movies you might recall Mr. Olivander telling Harry, "The wand chooses the wizard, it's not always clear why." Something similar happens in tax preparation - the tax form chooses you. Or, rather, the software chooses the best tax form for you based on your tax situation. In either case, the taxpayer doesn't choose which form to file. Although, each year I have a few who try. They note the 1040-EZ is the cheapest option to have me prepare and tell me to go ahead and use that form for their taxes. It is my sad duty to crush their dream of saving a few bucks on tax preparation for the year by informing them their tax situation is too complex for the 1040-EZ.

It's getting harder and harder to qualify to use the 1040-EZ. To help clarify the requirements the IRS provides this handy 11-item checklist the taxpayer can use to see if they can file their taxes on Form 1040-EZ. ALL of the items in the checklist must apply.

  • Your filing status is single or married filing jointly
  • You do not claim any dependents
  • You do not claim adjustments to income.
  • You claim no other tax credits than the EIC.
  • Under the age of 65 and not blind.
  • Taxable income is less than $100,000.
  • Taxable interest is less than $1,500.
  • Tip income is included on W2.
  • No household employees.
  • Not in Chap 11 bankruptcy.
  • Did not receive advanced premium tax credit.

That's quite a list of qualifications to let a taxpayer use the EZ form!

The next step up from the 1040-EZ is the 1040A. With the 1040A you can claim more sources of income, some of the adjustments to income, and many of the tax credits. Your taxable income still has to be less than $100,000 and you can't itemize your deductions. To itemize you'll need form 1040 and a schedule A. You must also use form 1040 if any of the following are true:

-You received any of the following types of income:

    • Income from self-employment (business or farm income).
    • Certain tips you did not report to your employer.
    • Income received as a partner in a partnership, shareholder in an S corporation, or a beneficiary of an estate or trust.
    • Dividends on insurance policies if they exceed the total of all net premiums you paid for the contract.

-You can exclude any of the following types of income:

    • Foreign earned income you received as a U.S. citizen or resident alien.
    • Certain income received from sources in Puerto Rico if you were a bona fide resident of Puerto Rico.
    • Certain income received from sources in American Samoa if you were a bona fide resident of American Samoa for all of the tax year

-You have an alternative minimum tax adjustment on stock you acquired from the exercise of incentive stock optios.

-You received a distribution from a foreign trust.

-You owe the excise tax on insider stock compensation from an expatriated corporation.

-You owe household employment taxes. (Schedule H)

-You are claiming the adoption credit or received employer-provided adoption benefits.

-You are an employee and your employer did not withhold social security and Medicare tax.

-You had a qualified health savings account funding distribution from your IRA.

-You are a debtor in a bankruptcy case.

-You must repay the first-time home buyer credit.

-You had foreign financial assets in 2014

-You owe Additional Medicare Tax or had Additional Medicare Tax withheld.

-You owe Net Investment Income Tax.

-You have adjusted gross income of more than $152,525 and must reduce the dollar amount of your exemptions.

-You received a Form W-2 that incorrectly includes in box 1 amounts that are payments under a Medicaid waiver program, and you cannot get a corrected W-2, or you received a Form 1099-MISC that incorrectly reported these payments to the IRS.

Another atrociously long list. Is it any wonder most people are quite happy to have the software select the correct tax form for their tax situation? If you have any questions please contact me.