CGS Tax Series: 1040 + Schedules A & B

Welcome back to the CGS Tax Series! A few days ago, we introduced you to the tax series by providing an overview of the history of taxes and why Americans are required to file. Today, we will be covering the first schedules found in the 1040EZ, 1040A or 1040. These are schedules A & B. Before we get into these schedules, let’s first discuss what a 1040 form is.

What is a 1040?

A 1040 form is an individual income tax return form used to file your income taxes every year. The 1040 covers the amount of income you have earned, the amount of taxes already paid, and any tax deductions or credits you may be entitled to. This form gives the IRS all of the information they need to determine how much tax you owe or how much tax will be awarded to you.

Depending on your tax situation, you may only have to file a 1040A or 1040EZ. The 1040EZ form is the simplest IRS form used to file income taxes. The form is often used by individuals who don’t make much money, and don’t have multiple streams of income. Only “single” and “married filing jointly” statuses can be used with the 1040EZ. A 1040A form is the most common form used when filing.

It applies to all of the filing status options, allows for multiple tax credits and deductions, and is used when there are no itemized deductions. The 1040A only allows for capital gain distributions, no other capital gains or losses. The 1040 form is used when income exceeds $100,000, deductions need to be itemized, the filer has self-employed income, and/or the filer has received income from the sale of property. If you’re not sure which form to use, check out the “Which Form Should I Use?” section from the IRS website.

Schedule A

A Schedule A form is required to be filled out any year you decide to itemize your deductions. When we say itemize, we mean that you are not taking the standard deduction. The standard deduction is a deduction amount given to everyone. You have the option of taking this amount, or itemizing your own deductions for a higher amount.

If you are itemizing deductions like medical and dental expenses, taxes, interest, gifts to charity, theft losses, job expenses and other miscellaneous items, you are required to use the Schedule A form. TurboTax provided a great definition to understand the comparison of the standard deduction and the itemized deduction:

“Using Schedule A to itemize your deductions allows you to claim a number of personal expenses; however, it may not make financial sense to do so since you give up the standard deduction. In 2015 for example, the standard deduction for a single taxpayer is $6,300. If you have $1,000 in charitable donations and pay $2,000 of mortgage interest during the year, your itemized deductions are only $3,000. In this case, you can save more in income taxes by claiming the standard deduction instead of itemizing.”

Schedule B

A Schedule B form is required to be filed if you receive more than $1,500 in interest or dividend income. Since most types of interest are taxable, they are required to be filed. If your savings account accumulated more than $1,500 in interest during the year, the Schedule B would be needed. If you received dividends from stocks totaling over the threshold, you will have to fill out the Schedule B.

Lastly, any interest, dividends, or distributions from foreign accounts or trusts are also required to be on the Schedule B. Often times, you will receive a 1099 form that indicates the amount of interest or dividend income, and who paid it out. The 1099 form makes the process much easier when filling out your totals.

 

We are slowly but surely making our way through the income tax return. Stay tuned for the next Tax Series article which will feature details of the Schedule C and self-employed income. Do you itemize your deductions? Have you ever had to file a schedule B? What experiences have you had with tax returns in the past? Leave a comment below and let’s talk!

-The CGS Team

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1 thought on “CGS Tax Series: 1040 + Schedules A & B”

  1. I have never had to fill out either however due to changes in my income I have received many different income tax forms that I have had to educate myself on. For instance HSA, and stocks require mire tax forms.

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