5 Different Tax Forms You Should Know About

If you run a business and pay taxes on your profits, you need to be aware of the different types of tax forms present today. If you ask the IRS’s website for an entire list of federal tax forms, you will probably see more than 900 results! Different forms serve different purposes, and you must be aware of which ones to use and how.

Fortunately, you do not need to worry about all of them. However, there are a few tax forms you should know about before you file your annual tax return. As a business owner, you need to be on top of your accounting and financial records and the tax forms form a part of your annual documentation. Let’s take a look at the 5 different tax forms you should be aware of.

1. Form 1040

Form 1040 is a biggie and a bright star of the show. This form is where you tally the income and deductions and calculate the tax liability. It is a form where you have to fill in 70+ lines and there are two other forms you have to use with it- 1040EZ and 1040A.

• Form 1040: Irrespective of the filing status, anybody can use this form. You can itemize as well as claim all the credits and deductions here.
• Form 1040EZ: This is a one-page form for those under 65 who have basic tax situations and cannot claim any deductions or credits, besides Earned Income Tax Credit. That said, your taxable income should also be under $100,000.
• Form 1040A: Form 1040A is also for simple tax situations. But you cannot itemize here. However, you can claim the popular tax credits and deduct IRA contributions, student loan interest, and other things. The taxable income must be under $100,000.

2. Schedule A

Schedule A is ideal for itemizers and helps itemize the deductions like charitable contributions, property taxes, medical expenses, mortgage interest, state taxes, and others.

3. Schedule C

You use Schedule C to report the gains and losses from consulting, contractor, or freelancing work. It allows you to deduct expenses related to the growth and development of the business-like office supplies, home office expenses, or advertising.

If your expenses fall below $5,000, you will be able to get away with using the shorter C-EZ but you should have no inventory, no employees, no depreciation, and no deductions for the cost of the home.

4. W-2

This is another very important form you must be aware of. W-2 is used by the employer and shows how much you earned and what you contributed to the company’s retirement plan and the amount of taxes that were withheld on your behalf. The form is sent by the employer to their employees in January or February. One copy will also go to the IRS.

5. Form 1099

Form 1099 will come in various flavors and the top ones are 1099-DIV, 1099-OID, 1099-INT, and 1099-MISC. These forms will have details of income you have received from a source other than the employer and the one who sends you the form will also send a copy to IRS so do report it on your return.

1099-DIV will report the dividends, 1099-OID will be used when you buy a note or bond at a rate lower than the face value, 1099-INT will reflect the interest you earned on investments and 1099-MISC will be for everything else not derived from investments like the money received for freelance work.

These are the five very important tax forms you must be aware of. Besides them, there is also a form for you to fill out if you need more time or have made a mistake. However, it is not something that is often used. As a responsible taxpayer, it helps to understand which forms to use and when. This will make the process of tax filing easier and will ensure that your tax liability is calculated appropriately.

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