How to fill out form 1040: A complete guide

If you're filing your taxes in the US (or you're a CPA doing it for your clients), then familiarizing yourself with Form 1040 is an absolute must. A standard document among tax filers, Form 1040 serves as the foundation for reporting income, deductions, and credits. As such, it's filled out by anyone reporting taxable income.

The process for filling out Form 1040 can vary in complexity, depending on factors such as your client's adjusted gross income (AGI), filing status, and deductions or credits they qualify for.

The process is pretty straightforward for people with simple income streams. But if their tax situation involves multiple income sources or itemized deductions, it can get a bit tricky.

This article will cover the ins and outs of Form 1040, including what it is, the different types of 1040 forms, and how to fill them out correctly.

Let's dive in.

Form 1040 is the standard IRS form that individual taxpayers in the United States use to report their annual income and calculate their federal income tax. Its primary purpose is to summarize a person's income, deductions, and tax credits, ultimately determining whether they owe additional taxes or qualify for a refund. 

To that end, taxpayers must include details about wages, salaries, interest, dividends, and other income sources. Claim deductions or credits for things like charitable donations or education expenses are also included in this form.

Form 1040 is a core document in any tax return. That's why, when preparing your clients' tax returns, you must ensure they provide all the necessary info and documentation. Needless to say, attention to detail is a must, as it helps you avoid costly mistakes or missed opportunities for savings.

Form 1040 has different variations, and the correct form to complete depends on the taxpayer's specific situation. 

Form 1040 - The standard form used by US taxpayers to report income, deductions, and credits, determining tax owed or refund due.

Form 1040-SR - Designed for taxpayers 65 and older, featuring larger text and simplified income categories, but otherwise similar to Form 1040.

Form 1040-NR - Used by nonresident aliens to report U.S.-based income and calculate their federal tax obligations.

Form 1040-X - Filed to amend or correct an already submitted tax return, adjusting previously reported income, credits, or deductions.

Form 1040-ES - Used by taxpayers to calculate and pay estimated quarterly taxes on income not subject to withholding, like self-employment earnings.

Form 1040-V - A payment voucher submitted with a paper tax return when a taxpayer owes additional taxes to the IRS.

Now that we've covered the basics, let's look at the steps you need to take to fill out the Form 1040.

Collect the basic information

Make sure you have all the information you need to complete the form. Have your clients provide the following:

• Full legal name 
• Social Security number (SSN)
• Filing status
• Date of birth  
• Income documents (W-2s, 1099s, K-1s, etc.)
• Investment and interest income statements (e.g., 1099-INT, 1099-DIV)
• Business income and expense records (if applicable)
• Records of any unemployment income (1099-G)
• Health insurance information (Forms 1095-A, 1095-B, or 1095-C)
• Documentation for deductions (charitable donations, mortgage interest, etc.)
• Tax credits information (education, child tax credit, etc.)
• Previous year's tax return for reference

Download the form

Obtain a copy of the form by downloading it from the IRS website. Go to www.irs.gov/forms-instructions, click the 1040 form variation you need to fill out and save the PDF to your computer for easy access and printing.

Fill out respective schedules

Complete the form by filling out the respective fields and schedules. These include:

Schedule 1 - Additional income such as unemployment compensation or student loan interest deductions.

Schedule 2 - Additional taxes, including self-employment tax and alternative minimum tax (AMT).

Schedule 3 - Nonrefundable credits, such as education and foreign tax credits.

Schedule A - Itemized deductions, such as medical expenses, mortgage interest, and charitable contributions.

Schedule B - Interest and ordinary dividend income over a certain threshold.

Schedule C - Profit or loss from a business for sole proprietors or independent contractors.

Schedule D - Capital gains or losses from investments.

Schedule E - Supplemental income from rental properties, royalties, or pass-through entities.

Schedule SE - Self-employment tax for individuals with self-employment income.

When should you file Form 1040? According to the IRS, if your tax year ends on December 31, the due date for filing is generally April 15 every year. If that date falls on a weekend or legal holiday, the due date moves to the next business day. 

For example, in 2024, all states in the US except Maine and Masachusettes had their tax filing deadline on Monday, April 15, 2024. Taxpayers in Maine and Massachusetts had until April 17 because Patriots' Day, a regional holiday, is observed on April 15 in these states.

The IRS can also grant extensions and extra time for tax filers serving in the Armed Forces or outside the United States. For the most accurate and up-to-date information, visit the IRS website. 

As an accountant, one of the key value-adds you provide to clients is helping them legally maximize their tax deductions. In the context of Form 1040, here are some steps you can take to do just that. 

• Take advantage of itemized deductions - Review whether itemizing deductions, such as mortgage interest and medical expenses, will save more than the standard deduction.
• Max out retirement contributions - Encourage clients to contribute to IRAs or 401(k)s to lower taxable income.
• Leverage charitable contributions - Ensure clients claim all eligible donations, including non-cash contributions.
• Claim education credits - Make sure clients use available credits like the Lifetime Learning Credit or American Opportunity Credit.
• Deduct self-employment expenses - For business owners, deduct qualified business expenses like office supplies, travel, and equipment.
• Use health savings accounts (HSAs) - Contributing to an HSA can reduce taxable income and provide tax-free withdrawals for medical expenses.

Review state and local tax (SALT) deductions - Ensure clients claim eligible state and local property, sales, and income taxes up to the allowable limit.

If you have a lot on your plate and have to juggle multiple 1040 filings (a good problem to have), you can efficiently manage everything by leveraging technology and working smarter. Consider the following tips. 

Use tax software - Invest in robust tax preparation software to automate calculations, streamline data entry, and track progress on multiple returns.  

Consider solutions like Drake Software or ProSeries, which offer enhanced features such as integration with accounting systems and electronic filing. Such solutions can make the process smoother and more efficient for tax professionals.

Organize client data early - Request client documents ahead of time and use digital folders or cloud-based systems to keep records organized. Doing so allows for quick access and minimizes the risk of misplacing important documents during tax season.

Automate your systems - Invest in a robust tax preparation software to automate calculations, streamline data entry, and track progress on multiple returns.
Consider solutions like ProConnect, Lacerte, Drake Software, ProSeries, UltraTax or CCH Axcess Tax which offer enhanced features such as integration with accounting systems and electronic filing. Such solutions can make the process smoother and more efficient for tax professionals.

Create standardized templates - Develop templates for common client profiles to reduce manual entry when preparing documents.

Let's say you frequently work with self-employed clients. Having a template ready for typical deductions and business income makes the process quicker and more accurate.

Leverage batch processing - File returns in batches when dealing with similar cases. For example, if you have multiple clients who run businesses in the same fields or have similar income streams like rental properties, you can group their filings together.

This helps you be more consistent with handling returns and reduces the likelihood of errors.

Set firm deadlines for clients - Filing your clients' taxes becomes inefficient (not to mention more stressful) when you don't get the right info on time. That's why it's critical to set clear expectations early and communicate deadlines clearly and frequently. Establish firm deadlines for receiving documents to avoid last-minute rushes.

Form 1040 isn't filed in isolation. Depending on your clients, you'll need other forms to go with the return.

Here are some common ones to consider:

• Form W-2 - This form is used to report wages, salaries, and tips for employees. You must attach this to Form 1040 when filing.
• Form 1099-NEC - Required for reporting non-employee compensation, 1099-NEC is often used for independent contractors or freelancers.
• Form 1099-DIV - This form reports dividends and distributions received from investments. So, if your client has investment accounts that yield dividends, Form 1099-DIV is a must.
• Form 1098 - For reporting mortgage interest paid, this form allows clients to claim the mortgage interest deduction. Use it for clients who own homes.

Filing Form 1040 (even if you have a lot of them on your plate) doesn't have to be a daunting or inefficient task. As long as you stay organized, automate your workflows, and have the right documents, you can help your clients maximize their deductions and ensure smooth filing.

Ready to simplify your tax season even further? Use Igntion's Individual Tax Return proposal template to streamline your engagements and start delivering value from the first interaction!