You might be surprised to learn that you’re not the only one frustrated when tax season rolls around. The IRS has faced plenty of challenges and tax changes during the pandemic era.
Many experienced longer than normal wait times for their tax refunds in 2021, and the IRS is hinting the 2022 season could bring challenges too.
For most people though, tax season means navigating the IRS forms and trying to make sense of it all. Recent changes mean IRS Form 1040 looks and acts differently than in the past.
Whether you’re prepared for the 2022 tax season or not means digging in and looking at the 1040 and 1040 SR instructions for (2021).
Many might even be confused about how Form 1040 and Form 1040-SR are different. Which form should you use?
Read on to learn all you need to know about IRS Form 1040 and Form 1040-SR and how to navigate these forms for this year’s tax filing.
What Is IRS Form 1040?
Everyone who meets a minimum income threshold must file taxes using IRS Form 1040. There used to be many different versions of this form depending on your filing status.
In 2019, the IRS streamlined Form 1040 so nearly all filers will use it. A small group of seniors is eligible to use Form 1040-SR, more on this later.
Form 1040 is the master tax filing document that leads you through calculating your tax responsibility.
The IRS created this form using the building-block approach. If you do an itemized tax return, this is the master document you use and you add information from the assorted schedules to calculate your taxes.
You will do your calculations for deductions and credits on the separate schedules, then list the final number to compute your final tax obligation on IRS Form 1040.
What Will You Need to Complete Form 1040
No matter how you feel about completing your taxes, the whole process is much simpler if you gather everything you’re likely to need before you get started.
Even if you have your taxes computed by a tax service, you’ll still need all of the following information. Here’s what you need:
- Date of birth information for you, your spouse, and all dependents
- Wage earning statements like your W-2 and 1099 forms
- Social security numbers for yourself, spouse, and dependents
- Tax credits or tax deduction information
- Previous year’s tax return
- Statements of interest or 1099-DIV forms
- Bank account number and routing number
Gathering this information and forms will make completing IRS Form 1040 go much more quickly.
Filling Out Form 1040
Let’s take the Form 1040 section by section and look at exactly what you will need to do to complete this for your taxes.
Remember, Form 1040 is what you’ll send to the IRS to file your taxes. But to complete this form, you’ll need several other forms and schedules to calculate what goes on the Form 1040.
Here’s a closer look at how to approach this form.
Your Personal Information
The first part of Form 1040 is pretty straightforward because it is personal information for you, your spouse, and your dependents.
This is the identifier information the IRS will use to connect your tax form with other information they’ve received about you from people like your employer.
This section will ask for your:
- Social security number (SSN)
- Tax filing status
Some people have an Individual Taxpayer Identification Number (ITIN) instead of a Social Security number. You would enter the ITIN where the Social Security number would go if this applies to you.
Interestingly, this section also asks tax filers if they’re interested in making a donation to the presidential election campaign fund, and the donation is divided between the Democratic and Republican candidates’ campaigns.
IRS Questions About Cryptocurrency
While it’s just catching on for many, the IRS has become hip to the world of cryptocurrency. And, of course, they want you to pay up if you’ve made money this way.
Form 1040 will ask about whether you were involved with virtual currency, like Bitcoin, Ether (Ethereum), or XRP (Ripple). They want to know if you:
- Otherwise owned any virtual currency
If you answer yes to this cryptocurrency question, you may have to pay capital gains on profits made from it.
The next section is the standard deduction section. Everyone will get some form of the standard deduction. This is based on:
- Filing status
- Whether you’re blind
The section has seven boxes that ask a series of questions. For each box that applies to you, you put a check. If you’re filing jointly with a spouse, then you check if it applies to either of you.
Then you use the information from what you checked to figure out what your standard deduction will be for the year.
The IRS also wants to know about your dependents. In this section, they will ask about your them, including their Social Security numbers.
They will want to know the dependent’s relationship to you and if they qualify for the child tax credit.
The child tax credit is especially important this year because of the increases that were created by the American Rescue Plan.
Child tax credits increases went from $2,000 per child to $3,000 per child for children over the age of six and from $2,000 to $3,600 for children under the age of six. It also extended to children up to age 17.
This next section on taxable income is a long one and has lines 1 through 15. This is where you fill in and add up all income that is potentially taxable by the IRS.
Since there are many ways you might have income, each line asks about a different type of income. If you have income from this type, you fill in the number. If you don’t have income from this type, you leave it blank.
In line 1, you add up all totals from any W-2 forms you have and put the total in the space.
Lines 2 and 3 require you to complete a Schedule B form. These two sections look at the interest you made and income from dividends.
Lines 4, 5, and 6 looks at the income you might have from investments like IRAs, pensions, and annuities. It also considers the income you received from social security benefits.
Line 7 asks about any capital gains incomes and Line 8 asks about any other potential income not already reported on the previous 7 lines. You need to include Schedule 1 for line 8 information.
In line 9, you total up all income from lines 1 through 7. This is considered your gross income.
Line 10 looks for adjustment to income. Then in line 11, you’ll subtract the adjustments in line 10 from the gross income in line 9.
Line 12 has three parts. Line 12a asks you to list your standard deduction, 12b your charitable deductions, and 12c is the total of 12a and 12b.
If you’re claiming the qualified business income deduction, you’ll use line 13. You’ll need to attach either Form 8995 or Form 8995-A. This will allow you to claim the QBI deduction.
Add up the totals from lines 12 and 13 on line 14. Finally, you can get to your taxable income by subtracting line 14 from line 11.
Calculating Your Annual Tax Bill
Your total tax bill is figured using lines 16 through 24. These lines help you to calculate what the IRS calls your total tax liability before you subtract any of your tax credits, including the child tax credit.
As you work through line 18, you’ll know your total taxes owed. Lines 19 through 21 are possible tax credits.
In box 22, you subtract your total tax credits from line 21 from your total tax liability in line 18.
If you paid any additional taxes for things like self-employment tax, you’ll record it here.
You should add lines 22 and 23 and record this number in line 24. This shows your total tax number and the amount of taxes the IRS thinks you should have paid in 2021.
Tax Credits and Tax Liability
The next section covers lines 25 through 33. Here you will total up your tax credits to get to the final tax liability number. It breaks down like this:
- Line 25, the amount of income tax already withheld
- Line 26, the estimated amount of tax payments already paid for the year
- Line 27, the total of your earned income tax credit
- Line 28, (expanded for 2021), the refundable child tax credit
- Line 29, the value of American Opportunity Tax Credit (AOTC) using Form 8863
- Line 30, the recovery rebate credit if you didn’t receive March stimulus checks
- Line 31, tax credits from Schedule 3 for qualified sick and family leave credits
Finally, in line 32, you will total up lines 27a and 28 through 3. Then you will add up the values on 25d, 26, and 32 to get to the total tax payments for the 2021 tax year.
Refund or Pay?
This is really the section most taxpayers either love or dread, depending on the final outcome. Here you will finally calculate if you owe more money in taxes or you’re getting a refund.
If line 33 is more than the total tax you owed in line 34, then you’ll be happy to know you’re getting a refund. If line 33 is less than line 34, you will owe more in taxes.
Line 35 asks you to provide direct deposit information if you qualify for a refund. If you have refund money coming from line 36, you can apply it to your tax obligation in line 37.
Finally, line 38 will tell how much you owe by subtracting line 33 from 24.
What Is IRS Form 1040-SR?
Congress required the IRS to create a special tax form from the Bipartisan Budget Act of 2018 for senior citizens with simple taxes to file.
Form 1040-SR is unique in a few ways. First, it’s printed in larger print making it easier for seniors to read. It also includes a standard deduction table directly on the form, making it easier for seniors to calculate and complete the form.
Form 1040-SR uses the same lines and schedules as the regular 1040 form used by most other filers.
Who Is Eligible to Use IRS Form 1040-SR?
The IRS Form 1040-SR is available for anyone over the age of 65. There are no other restrictions related to using this form. In fact, otherwise, it’s the same as Form 1040.
Many seniors who fill out their tax form by hand, instead of doing it online, prefer the 1040-SR because the print is larger and the boxes are bigger for writing in the numbers.
What Can You Report on Form 1040-SR?
Form 1040-SR functions exactly the same way as Form 1040 in the eyes of the IRS. If you can report it on the regular Form 1040, then you can also list it on Form 1040-SR.
Seniors would report income, deductions, credits, and other items just like they would on the other version.
1040-SR and Cryptocurrency
Form 1040-SR has virtually no changes in the 2021 version from the 2020 version.
One thing seniors should note is the IRS asking about cryptocurrency. They will want to know if you’ve received, sold, sent, exchanged, or otherwise acquired any form of cryptocurrency during 2021.
Again, this might be subject to capital gains taxes.
1040-SR and Above-the-Line Charitable Contributions
Like in the regular 1040 form, you can claim above-the-line charitable contributions.
The IRS allows up to $300 for 2021 if you file alone. If you’re filing as a married couple, they allow up to $600.
You don’t have to do an itemized deduction to get this charitable donation deduction.
1040-SR and Detailed Federal Withholding
One slight adjustment to Form 1040-SR from 2020 is that now the federal income tax withholding is listed in three parts where previously it was listed in one section.
Federal withholding is listed as follows on Form 1040-SR:
- Withholding from Form W-2
- Withholding from Form 1099
- Withholding from other forms
The IRS has also added a line 26 that asks for estimates on tax payments to be reported.
1040-SR and the Recovery Rebate Credit
Line 30 of 1040-SR specifically deals with the Recovery Rebate Credit. This deals with the third stimulus check US citizens received in early 2021 for coronavirus relief.
This line asks you to report the amount you received.
Understanding Line 37 on the 1040-SR Form
There’s a slight adjustment to Line 37 from the previous year’s 1040-SR documents. In the past, line 37 named the amount of money you owe in taxes.
This year line 37 names the amount of money you owe now. Because of coronavirus relief, some tax payments can be deferred.
Everything You Need to Know for 1040 and 1040 SR Instructions for (2021)
While Form 1040 and 1040-SR serve the same purpose, they are meant for different tax filers. Follow these 1040 and 1040-SR instructions for (2021) to get your taxes properly filed this year.
If you need help with your taxes, our experienced tax attorneys can help you. Contact us today to get your tax questions answered and let us help you get your taxes filed right.