Common Tax Forms for Common People
Because I'm a CPA, people assume that I do taxes as a part of my job. The truth is that even though every CPA had to pass the CPA exam which involves some assessment of tax knowledge, not all CPAs do taxes as their primary job. While I wouldn't call myself a tax accountant, I stay up to date with the information that can help my friends and their businesses. Today, I'm going to share the information that most of my friends are looking for when they ask me about their personal taxes. Let's answer the question "What are these tax forms?"
W-2
The form W-2 is something that an employer provides an employee that documents the income earned, and taxes withheld in that relationship for the calendar year. If you had more than one job during the year, you should receive more than one w2 to put on your tax return. In many cases, the big thing that distinguishes a W-2 from a 1099 (which we will talk about soon) is the withholding of state and federal taxes. Companies will usually only withhold taxes from their own employees. Any independent contractor that the company might hire is not likely to see significant amounts withheld from their income.
1099
If you have a side gig like driving for Uber or something similar, the company you work with will probably issue you a 1099 form which outlines the amount of income you've received through them for the calendar year. The most common form 1099 is issued for those who have an independent contractor relationship with an entity, as opposed to the employer employee relationship. As a result of this relationship, it's very likely you did not have the company withhold any taxes on your behalf (although some may) and therefore you are likely to owe money related to this income when you file your taxes.
1099s are also used to inform the taxpayer of income from non-working relationships such as interest on bank accounts, or dividends from stocks. You will probably receive at least one of these, but they aren’t likely to be reporting much income (yet).
When it comes time to file taxes, many people will take their W-2 and maybe a few 1099s and simply put the information onto the 1040.
1040
The form 1040 is the federal income tax return form for individuals in the United States. Income, deductions, and everything else related to your personal taxes are reported on the 1040 or one of its supporting schedules. Here's some examples:
Made money as an employee? That goes right on the front of the 1040 on line 1.
Made money as an independent contractor? You will need to fill out a schedule C, then bring that income to schedule 1 of the 1040, which will then bring it to line 8 on the 1040.
Made interest from a bank account? Line 2b on the 1040.
Want to itemize deductions? Fill out a schedule A.
Everyone is going to have a different tax situation, but ultimately, it's important to remember that everyone will file a 1040, no matter how many sources of income they might have.
So now you know the basics of the most basic tax forms. Be sure to keep an eye on your mail and email for these so you can do your taxes!