Knowing whether to File Form 1040 or 1040ez

Ah, the classic question that we’re all confronted with each year: “which form should I file?” Surprisingly, the answer to this question is much simpler than most people think. For those information-seekers out there who prefer to find the answer for themselves, take a look at the Internal Revenue Service’s (IRS) Publication 17[1]. Pub. 17 is a one-stop guide for everything that you’d ever want to know about individual income taxes.

If you have already perused this document and found your answers (on the bottom of p. 8 and the top of p. 9[1]), congratulations! The rest of this article is not for you and you can safely consider yourself “educated.” Should you decide not to confuse yourself with all of the IRS lingo, please read on.

The decision of which form to file at tax time comes down to a few simple factors: 1. The complexity of your current financial situation, 2. Your marital status, 3. How many people live with you, and 4. Your ownership of a home or business. While discussing these different forms and who should file them, I would encourage you to visit your local post office, library, or tax office to pick up one of each of these forms. By having the form to use as a reference, it will be easier to understand the specific items discussed. Additionally, aside from the title of the article, Form 1040A is also used to file individual income. The 1040A, which will be discussed later, lies at the midpoint between the 1040EZ’s simplicity and the 1040’s complexity.

Stylish Simplicity – The 1040EZ[2]

This form is rather creatively named because it is essentially the easiest tax form you will ever use. The 1040EZ is very straightforward and only one page in length. To further dive into this form, it is divided into two main parts: “Income” and “Payments and tax.”

Under Income, you are only able to report wages, salaries, and tips; taxable interest (e.g. interest from your savings account), unemployment compensation, and Alaska Permanent Fund dividends (special payment particular to residents of Alaska). For Payments and tax, you are able to claim the Earned Income Credit (EIC) and federal telephone excise tax credit, and make a non-taxable combat pay election (for members of the U.S. armed forces). That’s it, those are the only things you can report on this form as far as income is concerned.
The majority of people who use the 1040EZ have a very simple financial picture. For example: high school and college students, single or married people with no children who only have income from a job, interest from a bank account, people who don’t own a home, and unemployed individuals.

Middle of the Road – The 1040A[3]

The 1040A contains all of the major elements and the simplicity of the 1040EZ, only you are also able to claim exemptions for dependents. If you don’t qualify to use the 1040EZ because you have children or support other individuals, this form may be right up your alley.

In terms of income you can report on this form, also included are items like IRA (individual retirement arrangements) distributions (payments from your private retirement account), dividends (like interest, only they are usually from a mutual fund or stocks), and capital gains distributions (if your mutual fund or stock is sold at a higher value than what you bought it). Additionally, you are able to adjust your income through more deductions under the “Adjusted gross income” section. Some of the more commonly used deductions are Traditional IRA deductions (when you contribute funds to an individual retirement account; $4,000 was the limit for 2006 if this helps to jog your memory) and student loan interest paid (you can deduct the interest that you paid as part of a student loan; your school or lending institution will send you a statement listing these amounts).

Also, you will notice that this form has two pages. The reason for this is that you offered a greater choice of credits to claim if you qualify for them. To use an example, a friend of mine recently graduated from college, started his first “real” job, and opened an IRA. On p. 2 of the 1040A he claimed the education credit on line 31 (using Form 8863[4]), a retirement savings contribution credit (Form 8880[5], for $2,000 that he was able to contribute to his IRA), the child tax credit for his daughter, and also the EIC (Earned Income Credit, which is also available on the 1040EZ). Had he not known about the extra credits available and filed this form, he probably would have had to pay taxes or would have received a smaller refund than the $1,400 he earned as a result.

As you can see, this form is still relatively easy to use. My friend had just graduated from college, had dependents to claim on his return, and was even able to take some extra credits for costs he had paid throughout the year. If any of these items pertain to you or you think that you might be eligible for some of these credits, you may want to upgrade to the 1040A for your taxes. Next, we will review the champion of individual income tax forms, the 1040.

Fully-Loaded – The 1040[6]

Any type of income that you make or credit that you can possibly claim on your tax return for 2006 can be reported on the 1040. Whereas the first two forms allow you to report all items as they apply to you while keeping the process simple, this form is a bit more comprehensive and infinitely more complicated. But take heart, with some free time and a copy of the 1040 instructions close by, there aren’t many things that you can’t do on your own without a Certified Public Accountant’s (CPA) help.

Hopefully you took my advice and picked up a reference copy of these forms because, as you can see, the 1040 can be very confusing and intimidating. In terms of income, you are able to report the same items that were noted on the 1040EZ and 1040A, only this form contains every other type of income that an individual may earn. To highlight some examples: alimony; business income (for sole proprietorships this is reported on Schedule C[7]); rental real estate, partnerships, s-corporations, and trusts (all with which you must attach Schedule E[8]); and farming income (reported on Schedule F[9]). If I’ve lost you on some of the terms, let me assure you that you would know if any of these applied to you. Companies are legally bound to send year-end statements if they pay you any business-related income; generally your state of residence will send you the total of alimony payments you have received or paid; and if you have a lot of cows and wheat fields near your home it should be obvious that you’ll have to report farming income.

The 1040 also includes many more items that you can use to reduce your adjusted gross income (which are called “deductions” and were discussed earlier). To use myself as an example, I moved between two states this year to start a new job. By taking a few moments to gather some old receipts, calculate the distance between my old house and my new house, and peruse the instructions for Form 3903[10], I was able to deduct about $500 in moving expenses on line 26. And if you are self-employed, you can deduct the cost of your health insurance and contributions to your personal IRA. These are just two of many deductions available; page references are listed by each so that you may review the qualifications in the 1040 instruction book.

There aren’t many additional credits that can be taken on p. 2, though this form does include a section to claim the additional child tax credit and residential energy credits if you qualify for those. On a separate yet related note, if you file Form 1040 you are able to file Schedule A[11]. This is commonly referred to as “itemizing.” Itemizing is not as painful as it sounds, and like I’ve said many times before, if you’re able to itemize you’ll definitely know. Schedule A is mostly used by homeowners, yet there are a few line items on this form that might apply to you. For example, line 1 for medical and dental expenses. Shockingly enough, you can deduct most of the costs you pay for medical care, whether those are insurance premiums or what you paid to have your wrist put in a cast after a tragic bowling accident.

Of special interest to homeowners, further down the form on lines 10 through 13, you are able to report the interest that you paid on your home mortgage. Below the interest section is where you report gifts to charity, losses from left or damage to your personal property, job expenses that your employer doesn’t reimburse you for, and, most notably, tax preparation fees. Yes, it’s true, if your local CPA charged $60 to file your taxes last March you can claim this as a deduction on your tax return using Schedule A. (Please note- if total itemized deductions are not greater than your standard deduction listed on line 40 of the 1040, it will not be beneficial for you to itemize.)

So what’s the answer?

My answer is that I’m not entirely sure which form you need to use. This depends on your own personal finances and which deductions and credits that you qualify for. Like I have stated continuously throughout this article, the best thing you can do is to educate yourself. Pick up a copy of each form with the accompanying instructions and read about them. If you’re short on time, just look at pp. 8-9 of Pub. 17 and follow the directions. While it may seem like an insurmountable task to download the 200+ page Pub. 17 and read the entire thing, it could benefit you to browse just the pages that apply. Remember the example of my college graduate friend who filed the 1040A? Had he not taken the time to review the differences between the forms, he would have been denying himself a few thousand dollars of credits. Our government has set aside special money to fund these tax credits and he was fully entitled to claim them.

For the sake of comparison and to cement your memory of these forms, I like to use the analogy of a car. The 1040EZ is your old Honda: it’s not flashy, doesn’t come with a lot of options, and is dangerous to drive with kids in the back because there’s no room, but it can quickly take you where you need to go. 1040As are your minivan: plenty of space for the kids, doesn’t get the greatest gas mileage, but it can haul grocery bags full of credits home like nobody’s business. The 1040 is the Cadillac: it has everything you need, all the bells and whistles. This form is for the discriminating taxpayer, with plenty of trunk space for all of those extra deductions and almost enough leg room to fit a house into.

Finally, if you do have a complicated tax issue, please consult your local tax professional, CPA, or IRS Enrolled Agent (EA). These individuals are certified to prepare your taxes and can answer any questions you might have. Unlike franchise tax preparation businesses (I won’t cite any specific companies), CPAs and EAs know the right questions to ask and can advise you as to how best to claim every deduction that you’re entitled to and minimize your tax bill. I wish you the best of luck and thank you for taking the time to learn about your obligations as a fellow taxpaying citizen!


1. “Publication 17: Your Federal Income Tax (2006),” Internal Revenue Service (

2. “Form 1040EZ: Income Tax Return for Single and Joint Filers With No Dependents (2006),” Internal Revenue Service (

3. “Form 1040A: U.S. Individual Income Tax Return (2006),” Internal Revenue Service (

4. “Form 8863: Education Credits (Hope and Lifetime Learning Credits) (2006),” Internal Revenue Service (

5. “Form 8880: Credit for Qualified Retirement Savings Contributions (2006),” Internal Revenue Service (

6. “Form 1040EZ: Income Tax Return for Single and Joint Filers With No Dependents (2006),” Internal Revenue Service (

7. “Schedule C (Form 1040): Profit or Loss From Business (Sole Proprietorship) (2006),” Internal Revenue Service (

8. “Schedule E (Form 1040): Supplemental Income and Loss (From rental real estate, royalties, partnerships, S corporations, estates, trusts, REMICs, etc.) (2006),” Internal Revenue Service (

9. “Schedule F (Form 1040): Profit or Loss From Farming (2006),” Internal Revenue Service (

10. “Schedule 3909: Moving Expenses (2006),” Internal Revenue Service (

11. “Schedule A (Form 1040): Schedule A-Itemized Deductions (2006),” Internal Revenue Service (