From Carol McAtee’s CPA firm in St. Petersburg, FL –Most people hate filling out tax forms almost as much as they hate paying taxes. This is why it is important for taxpayers to have the right professional guidance when filing their taxes so that the appropriate tax forms and schedules are used to take advantage of all available income deductions and tax credits available to them and potentially lowering their tax bill.
While all the personal income tax forms – 1040, 1040A, and 1040EZ – are all designed to get the appropriate amount of your money to the Internal Revenue Service, not selecting the right form could cost you.
Even though you might think your tax situation is simple and straightforward and filing the shortest and simplest form, the 1040EZ, is best, it might be worth your while to investigate the other more complex forms with the guidance of a tax professional. Generally, the longer and more complex the form, the more opportunities for tax breaks.
For many tax payers, the shorter and simpler form does not include deductions for student loan interest or IRA contributions. Additionally, use of the shorter form will not allow taxpayers to claim the child tax credit, the dependent care credit, retirement savings credit or deductions for educator expenses or moving expenses. Additional schedules and paperwork may also be needed to claim the tax credits and deductions available to taxpayers that file the longer tax forms.
For example, Joe Taxpayer finished college last year and is working at his first full-time job earning $35,000. He is single, renting and has no investment income. Joe seems like a perfect 1040EZ filer; however by filing the Form 1040EZ Joe will overpay his taxes.
Joe has a student loan. If he files the longer 1040A, he can deduct from his income the $2,500 interest he paid on the student loan. He can’t take the deduction on the 1040EZ. Joe also started planning for his retirement by contributing $5,000 to a traditional IRA account. Joe’s IRA contribution, if deductible, can reduce his taxable income further, but only if he files the longer tax form.
By choosing the 1040A over the 1040EZ, Joe reduces his taxable income to $27,500 from $35,000, the amount of his full salary. The lower taxable income has also dropped Joe into a lower tax bracket, the 15 percent bracket instead of the 25 percent bracket, even before he reduces his taxable income further by taking the personal exemption amount that every taxpayer is allowed and his standard deduction amount.
So, contact us at McAtee & Associates and we will insure that all the appropriate tax forms and schedules are completed claiming all the deductions and credits available, which will result in less tax due and more money in your pocket.
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
