If you’re filing income tax as an independent contractor or freelancer, it’s time to get closely acquainted with Form 1040. Who should file it? How do you file it? Here’s everything you need to know.
What is Form 1040?
Form 1040 is how individuals file personal income tax to the IRS. It’s used to report your gross income—the money you made over the past year—and how much of that income is taxable after credits, deductions, and personal exemptions. It will determine the amount of tax you owe or the refund you receive.
This form can handle multiple sources of income and more complicated tax situations that an independent contractor or freelancer might face.
If you're a sole proprietor, you'll need to fill out Schedule C (Form 1040) to report income or loss from your business.
What about 1040EZ and 1040A?
All taxpayers can file Form 1040 (“the long form”), without worrying about the specifications of 1040A and 1040EZ. These two forms exist for simpler tax situations. They require less paperwork but don’t allow you to itemize your deductions.
To use form 1040EZ, you must be single (either widowed, legally separated or divorced, or never married) or “married filing jointly” with no dependents, and make a taxable income of $100,000 or less. If you have a taxable income below $100,000 but are married or have dependents, you can use Form 1040A (but again, can only claim the standard deduction).
Who needs to file Form 1040?
You’ll need to file the full Form 1040 if:
- You have taxable income of at least $100,000 (if you earned less, you may be to use the shorter 1040A or 1040EZ)
- You earned self-employment income (greater than $400)
- You earned income in a partnership, as a shareholder in an S corporation, or as a beneficiary of a trust
- You want to use itemized deductions
If you're not a sole proprietor, you'll need another tax form too
If your business is a partnership, you'll need to file Form 1065 for your partnership taxes, in addition to Form 1065.
If your business is an S corporation, you'll need to file Form 1120S for your S corp taxes, in addition to Form 1065.
If your business is a C corporation, however, all your business taxes are handled on Form 1120. You'll still need to file Form 1040, but you won't need to report your business income there, just your personal income.
How to file Form 1040
Download Form 1040 directly from the IRS website or access the form via any popular tax software. The form is divided into sections where you can report your income and deductions to determine the amount of tax you owe or the refund you’ll receive.
You’ll need to have other income documents like the W-2 and Form 1099-MISC available to reference, as well as any other tax documentation sent to you this year.
Report your income
On the first page of Form 1040, begin calculating your Adjusted Gross Income (AGI) by reporting all sources of income you received for the year, unless it is tax-exempt. The sum of each source is referred to as your total income.
Make your deductions
Claim deductions or adjustments from your total income to reduce your taxable income. You can itemize your deductions using Form 1040, or take the standard deduction for your filing status by completing Schedule A.
After making your deductions, you can reduce your taxable income further with one exemption for yourself, and one for every dependent you claim. Taxpayers are entitled to exemptions on their tax returns to reduce taxable income like a deduction does. This is a fixed amount that usually increases each year. Subtract your exemptions to calculate your AGI, which is subject to income tax.
To make sure you deduct every possible expense you’re eligible for, check out our comprehensive list of small business tax deductions.
Calculate your tax liability
Consult the IRS Form 1040 Tax Table to determine the amount of your tax according to your taxable income. Use this to calculate what you owe the IRS, or your refund.
Form 1040 filing deadline
You’ll need to submit Form 1040 to the IRS by April 17, 2018, unless you’ve applied for an extension.