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Time and tax wait for none. With the arrival of January 2023, and passing away of 2022, the tax window for filing gets opened up, eagerly waiting for any of the 220 plus million tax payers in USA and abroad to file tax return with the option of taking back tax refund or pay the required tax to remain peaceful for the rest of the life.

Let us directly delve into the IRS web site for more clarity, whose reference given at the end.

Last date for filing of income tax return – April 18, 2023.

The following information drawn directly from form 1040 as per the format given in IRS web site.

https://www.irs.gov/pub/irs-pdf/f1040.pdf

This is different from older ones with additional information on digital assets.

Let us study the basic format for form 1040 – 2022.

It reads as under:

  • Filing Status
  • Digital Assets
  • Standard Deduction
  • Dependents
  • Income
  • Tax and credits
  • Payments
  • Refund
  • Amount you owe
  • Third party designee
  • Sign here
  • Paid preparer use only
  • Also includes Schedule 1, 2, 3. Schedule A, B, and C. In case of farming Schedule F.

Let us recapitulate the revised terms in the above form.

What is new in the form 1040? (From page 6 of IRS booklet on Instructions for form 1040)

Tax for season 2022-23

  • Due date of return. File Form 1040 or 1040-SR by April 18, 2023. The due date is April 18, instead of April 15, because of the Emancipation Day holiday in the District of Columbia – even if you don’t live in the District of Columbia.
  • Standard deduction amount increased. For 2022, the standard deduction amount has been increased for all filers. The amounts are: • Single or Married filing separately—$12,950. • Married filing jointly or Qualifying surviving spouse—$25,900. • Head of household—$19,400.
  • New lines 1a through 1z on Form 1040 and 1040-SR. This year line 1 is expanded and there are new lines 1a through 1z.
  • New line 6c on Form 1040 and 1040-SR.
  • Nontaxable Medicaid waiver payments on Schedule 1. For 2022, nontaxable amounts will be excluded on Schedule 1, line 8s.
  • Nontaxable combat pay election. For 2022, 1, individuals elected to include their nontaxable combat pay in their earned income when figuring the earned income credit (EIC) will make this election by reporting nontaxable combat pay on Form 1040 or 1040-SR, line 1i.
  • Credits for sick and family leave for certain self-employed individuals are not available.
  • Health coverage tax credit is not available.
  • Credit for child and dependent care expenses. For 2022, the credit for the child and dependent care expenses is nonrefundable. The dollar limit on qualifying expenses is $3,000 for one qualifying person and $6,000 for two or more qualifying persons. The maximum credit amount allowed is 35% of your employment-related expenses.
  • Child tax credit and additional child tax credit. Many changes to the child tax credit (CTC) implemented by ARP were not extended. For 2022, • The initial credit amount of the CTC is $2,000 for each qualifying child.
  • Changes to the earned income credit (EIC). The enhancements for taxpayers without a qualifying child that applied for 2021 don’t apply for 2022.
  • Reporting requirements for Form 1099-K. Form 1099-K is issued by third party settlement organizations and credit card companies to report payment transactions made to you for goods and services. You must report all income on your tax return unless excluded by law, whether you received the income electronically or not, and whether you received a Form 1099-K or not.

Under taxable income, let us revisit them as per revised format. (Taken from the form with suitable modifications)

Total amount from Form(s) W-2, box 1 (see instructions) . . . . . . . . . 1a

 Household employee wages not reported on Form(s) W-2 . . . . . . . . 1b

 Tip income not reported on line 1a (see instructions) . . . . . . . . . . . . .1c

 Medicaid waiver payments not reported on Form(s) W-2 (see instructions) . 1d

Taxable dependent care benefits from Form 2441, line 26 . . . . . . . . . .1e Employer-provided adoption benefits from Form 8839, line 29 . . . . . . 1 f

Wages from Form 8919, line 6 . . . . . . . . . . . . . . . . . . . . . …………………….1g

Other earned income (see instructions) . . . . . . . . . . . . . . . . . . ……………1h Nontaxable combat pay election (see instructions) . . . . . . ………………..1i

Add lines 1a through 1h . . . . . . . . . . . . . . . . . . . . . . 1z

(Attach Sch. B if required). 2a Tax-exempt interest

2b Taxable interest

3a Qualified dividends

3b Ordinary dividends

4a IRA distributions

4b Taxable amount

5a Pensions and annuities

5b Taxable amount

6a Social security benefits

6b Taxable amount

6c If you elect to use the lump-sum election method, check here (see instructions)

7 Capital gain or (loss). Attach Schedule D if required. If not required, check here.

8 Other income from Schedule 1, line 10

9 Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income

10 Adjustments to income from Schedule 1, line 26

11 Subtract line 10 from line 9.

This is your adjusted gross income (AGM)

Standard Deduction for— • Single or Married filing separately, $12,950 • Married filing jointly or Qualifying surviving spouse, $25,900 • Head of household, $19,400  If you checked any box under Standard Deduction, see instructions.

12 Standard deduction or itemized deductions (from Schedule A)

13 Qualified business income deduction from Form 8995 or Form 8995-A . . . . . . . 14 Add lines 12 and 13

15 Subtract line 14 from line 11. If zero or less, enter -0-. This is your taxable income.

To prepare the above columns, what are the documents required?

W 2 from your employers, 1099- INT, 1099-DIV, 1099-B, 1099 G, 1099- R, 1099-Q, 1099-Q, 1099-A, 1099-SA, Schedule K for income from a pass through business, trust or estate, Alimony received (if your divorce or separation agreement is dated on or before December 31, 2018), and formation on other sources of income, such as gambling winnings, jury duty pay, cancellation of debt, etc.

If you are self-employed, you need to report that income too. Obviously, this enables one to reduce the income by accounting for the expenses too.

Let us look at the documents that may be useful.

1099-NEC or 1099-K showing income earned as an independent contractor

Records of all business income and expenses,

Documentation for home office expenses, including square footage of home and square footage of area used exclusively for business, Records for business assets to be depreciated, including cost and date placed in service, Miles traveled for business purposes.

Deductions

Deductions can reduce your taxable income, lowering the amount of tax you owe or increasing your refund. Generally, you can claim the standard deduction, which is a flat amount based on your filing status, or itemize deductions. If you itemize deductions, you need information on: Out-of-pocket medical expenses, premiums paid for long-term care insurance,

form 1098 showing any mortgage interest, mortgage insurance premiums, and points you paid during the tax year, real estate taxes, state and local income taxes or sales taxes, taxes paid with your vehicle registration, charitable donations, documentation of casualty losses (if you lived or owned property in a federally declared disaster area),

 If you have any of the following deductions, known as adjustments to income, you can claim them even if you don’t itemize, Form 1098-E for student loan interest, records of contributions to an HSA, IRA, SEP or self-employed retirement plan, alimony paid (for divorce or separation agreements dated on or before December 31, 2018), for teachers, expenses paid for classroom supplies, premiums paid for self-employed health insurance.

Tax Credits

Tax credits are a dollar-for-dollar reduction in the amount of tax you owe. Yes, you’ll need the following documentation to claim valuable tax credits.

Form 1098-T showing expenses for higher education

Child care costs and care provider’s name, address, and tax identification number

Adoption costs and Social Security number child you legally adopted during 2022

Form 1095-A if you purchase health insurance through the Health Insurance Marketplace.

Estimated Tax Payments

If you’re self-employed or earned income that doesn’t have federal and state income tax withheld, you may have to make estimated tax payments. Make sure you include those estimates on your tax return to avoid double taxation.

Estimated tax payments made during the year to the IRS and state and local tax authorities are shown under the columns

Prior-year refunds applied to the current year

Any amounts paid with an extension.

Let us continue with form 1040 for broad understanding.

Under tax and credits, column 24 speaks of total tax.

Under payments, column 33 indicates total payments made.

Under column 36, refund is indicated. Details of bank account is indicated either for refund or to pay the less paid taxes with penalty, interest etc. , if applicable.

Amount you owe is available under column 38.

Let us know more about form 1040.

It consists of following schedules.

Schedule 1 is given below.

https://www.irs.gov/pub/irs-pdf/f1040s1.pdf

It consists of part 1, additional income and part 2, adjustments to income.

Let us learn schedule 2 which is as under.

 https://www.irs.gov/pub/irs-pdf/f1040s2.pdf

It is titled “additional taxes” with part 1, tax, part 2 other taxes, and both the parts totaling 21 columns.

What about schedule 3?

It is reproduced as under.

https://www.irs.gov/pub/irs-pdf/f1040s3.pdf

Titled additional credits, and payments, it has two parts, namely, part 1, Nonrefundable Credits, and part 2, Other Payments and Refundable Credits.

Do you have to file the return?

Use Chart A, B, or C to see if you must file a return. U.S. citizens who lived in or had income from a U.S. possession should see Pub. 570.

Even if one does not otherwise have to file a return, you should file one to get a refund of any federal income tax withheld. One should also file if the tax payer is eligible for any of the following credits.

  • Earned income credit.
  • Additional child tax credit.
  • American opportunity credit.
  • Credit for federal tax on fuels.
  • Premium tax credit.
  • Credits for sick and family leave.

Pub. 501 can be seen for details.

What happens if one can’t file the return by due date?

One can get an automatic 6-month extension if, no later than the date the return is due, one files Form 4868. For details, see Form 4868. Instead of filing Form 4868, one can apply for an automatic extension by making an electronic payment by the due date of the return.

However, the extension of the due date of filing the return does not entitle non payment of the taxes due.

If a U.S. citizen lives outside U.S.A., an extension of 2 months is available for filing the return with the usual clause that the taxes are paid within the stipulated time.

Detailed line instructions are available from the following publication among 113 pages of IRS publication titled “ form 1040 instructions.

https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

Conclusion

The purpose of this article encircles the basic concept that I.R.S., ranks among the top most U S treasury department which goes all out to help its tax payers, pays the refunds in time, and also helps others who can’t pay on time by giving instalments scheme to pay on a longer duration.

However, some of the worst enemies of U.S.A., got entangled by the same agency if they owed the taxes in U.S.A., but tried to escape its clutches. With nearly decades of helping US citizens, permanent residents or others who needed help, my experience with IRS has been a pleasure and I salute it for its professional approach in spite of recent pandemic and other unnatural disasters. Ideally, the tax payer is advised to use the services of a Certified Public Accountant, popularly known as a C.P.A, who would keep his records for a long time, immediately help during audit of his tax account and have a comfortable living as a tax paying human being.

Reference

Form no 1040.

https://www.irs.gov/pub/irs-pdf/f1040.pdf.

Please regularly refer the publications to have a deeper understanding of US taxing system which has evolved over the centuries.

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Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting because of the above write up. The possibility of other views on the subject matter cannot be ruled out. By use of the said information, you agree that Author/Tax Guru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors, or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

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2 Comments

    1. subramanian says:

      What is your experience in American taxation? Why cant you refer some cases to me? What software would you use
      Subramanian natarajan
      CPA

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