IRS FORMS TO BE FILLED IN FOR DECLARATION 

INTRODUCTION        

Federal income tax and state income tax fill in different forms, but the tax filing process is similar for both of them. The state tax filing process is also not as complicated as federal taxes, and paid tax reporting software also provides the function of state tax reporting. Federal income tax is collected by the US government to pay US government bills; while state income taxes are collected by individual state governments to pay their individual bills. Federal income tax applies to all US citizens and resident aliens on all of their worldwide income, and to non-resident aliens on their US source income. However, state income tax laws vary, but apply to residents of the state on all of their taxable income as defined by the state and non-residents of the state on income from sources within the state as well. The following separately describes the forms to be filled out for federal and state taxes. 

FEDERAL INCOME TAX

The federal income tax is the tax levied by the Internal Revenue Service (IRS) on the annual earnings of individuals, corporations, trusts, and other legal entities. Federal income taxes are applied to all forms of earnings that make up a taxpayer’s taxable income, such as employment earnings or capital gains.

The relevant form for US citizens to declare federal tax is the 1040 form. Form 1040 is a standard version of the tax return form. Form 1040 is the standard federal income tax form people use to report their income to the IRS, claim tax deductions and credits, and calculate the amount of their tax refund or tax bill for the year. Everyone can use the 1040 form and attach the form to file a tax return.

Generally, people only need to fill out the 1040 form to declare individual income tax. If the income from property income is more complicated, you need to fill in additional attachment forms.

Before the Trump tax law reform came into effect in 2018, there were originally 1040A and 1040 EZ forms. The Trump plan indicated that The Tax Cuts and Jobs Act significantly changed personal and corporate taxes. Corporations benefit more since their cuts are permanent while the individual cuts expire in 2025. Individual tax rates have been lowered, the standard deduction raised, and personal exemptions were eliminated. After the 2018 tax law reform was passed, there were only redesigned 1040 forms. But the reduced number of lines or taxes is simply transferred to 6 new different schedules. All 6 schedules ask for different information. The advantage of moving the details to separate schedules is that it makes the Form easier to quickly review. For taxpayers with simple tax situations, Form 1040 may be all they need. The six different schedules are:

Schedule 1 (Additional Income and Adjustments to Income) – This schedule includes income from state tax refunds, capital gains, businesses, rentals, partnerships, bonuses or gambling bonuses unemployment compensation, those that want to declare deductions such as student loan interest deductions and many more. It also shows adjustments from income, such as retirement plan contributions, deductible self-employment tax, health savings account deductions, and so on.

Schedule 2 (Tax) – The Alternative Minimum Tax can be reported in this schedule. Excess credit you may have received under the Affordable Care Act can be reported as well.

Schedule 3 (Non-refundable credits) – This includes Foreign Tax Incentive Credit, the Child Care Credit, education tax credits, general business credit, the Retirement Savings Credit, and Residential Energy Credit.

Schedule 4 (Other taxes) – This include self-employment tax, family employment tax, retirement accounts such as IRA-related derivative tax and responsibility payments related to health insurance coverage.

Schedule 5 (Other payments and refundable credits) ­-This schedule shows estimated tax payments, earned income tax credits, American opportunity credits related to international students, payments related to social security tax and all payments you may have made with an extension, and certain refundable credits.

Schedule 6 (Foreign Address and Third Party Designee) – This only concerns those who have foreign/overseas addresses or need a third party to discuss with the IRS about their tax returns.

 

The new six schedules are actually a combination of various income, tax and tax credits transferred from Form 1040 to become a direct schedule under Form 1040, while retaining the original contents. Using tax software to fill this form will be more preferable to hand because fewer mistakes would be made as the software guides you through the entire process. You are just required to fill in your necessary information and the software does the rest. Taxpayers can make use of TaxAct. It is very efficient.

STATE INCOME TAX

State income tax is a direct tax levied by a state on the income of taxpayers. Income is what taxpayers earn in or from the state. In your state of residence it may mean all your income everywhere. Just like federal income tax, state income tax is also self-assessed, which means taxpayers file required state tax returns. Not every state in the US has a state income tax. There are seven states in the United States that do not have to pay state taxes. These states include Nevada, Alaska, Florida, Wyoming, Texas, South Dakota and Washington. New Hampshire and Tennessee only tax interest income and dividends. Different states require different forms to be filed. We would use one state as an example, California. All states should be similar to this so taxpayers can also refer to this.

 

Relevant forms to declare California tax are: 540, 540-2EZ, 540-NR (Long), 540-NR (Short).

540 and 540-2EZ are used in California for tax residents for the year (California Resident).

540-NR (Long) and 540-NR (Short) are used for non-residents and part-year residents in California during the tax year.

In some states that are exempt from state tax, consumption tax is deductible. (Can make up for declaration within 3 years)

Which tax form should California residents use throughout the year? 

Residents of California should use the IRS form 540. To fill the IRS form 540, you must meet certain criteria:

Your filing or declaration status is single, married filing jointly, head of households, or qualifying widow or widower.

You have 0-3 dependents

Your income is from:

Salary, wages, tips

Taxable interest, dividends and pensions

Capital gains from Mutual Funds

Taxable scholarships and bursaries (recorded on W-2)

Unemployment benefits

Paid Family Leave Insurance

US Social Security

Level 1 and Level 2 railway retirement benefits

You make use of standard deduction only

Your exemptions are:

Personal exemption

Senior exemption

Up to three dependent exemptions

Your credits are non-refundable

If you or your spouse have been declared as dependent income by others, the taxable income of the single and the head of the household is not more than $100,000. Taxpayers should read about the 4 types of IRS Forms for California residents and know which ones they are to fill.