Know your Tax Forms - 1040 , 1040 EZ , 1099 etc

[Administrator]

The Various Tax Forms an H-1B Visa Holder Will Use
By Atlanta Tax Guru


As noted in the earlier article, H-1B visa holders are taxed as resident aliens. This article will review the tax forms you are most likely going to use to file your tax return.


If you are single or married with no children or other dependents AND your total income does not exceed $100,000 AND your other income is only taxable interest and unemployment compensation, then you can use Form 1040EZ. As noted by the extension “EZ”, this is the simplest form available to you to file your federal income tax. However, since the instruction booklet that comes with the Form 1040EZ is over 20 pages long, “simple” is a relative term here.


If you have children or other dependents (other than your spouse) AND your total income does not exceed $100,000 AND you are NOT itemizing your deductions, you can then use Form 1040A. While more complicated than Form 1040EZ, it is somewhat easier to use than Form 1040. It has enough flexibility to allow you to claim most of more common tax credits (child Care credit, Earned Income Credit, Child Tax Credit, the additional Child Tax Credit, Education Credits and the Retirement Ravings Contribution Credit) PLUS deductions for educator expenses, student loan interest, tuition and fees for higher learning and traditional IRA contributions.


If you cannot use Form 1040EZ or Form 1040A, you MUST use Form 1040. Also known as the long form, Form 1040 allows you to:

• claim income of any amount.
• itemize your deductions (on Schedule A).
• report taxable interest and dividend payments (on Schedule B).
• report income from a small business or contract work (on Schedule C).
• report income report stock transactions and sales of capital assets (on Schedule D).
• report income from rental property or royalties (on Schedule E).
• report farm income (on Schedule F).
• report self-employment income (Schedule SE).

Of all the Schedules noted above, the H-1B visa holder is most likely to use Schedules A, C, D or SE. For this reason, we will discuss each of these schedules in some detail below.


The Schedule A is used to itemize your deductions, which you should do if you have enough itemized deductions to exceed the Standard Deduction. The deduction that normally enables the taxpayer to itemize is the mortgage interest deduction. It is normal that the accumulated annual interest on a home mortgage BY ITSELF exceeds the Standard Deduction. Additionally, you can also deduct the interest on a ANOTHER mortgage, be it a second mortgage on your primary home or a mortgage on a second house. There are limitations on this deduction, but they are so high that the average taxpayer does not have worry about it.


In addition to mortgage interest, you can deduct local and state income taxes withheld and property taxes paid to any government entity. You can also deduct any charitable donations of cash and non-cash (such as clothes, furniture, food, etc.) donated to a recognized charity (sorry, handouts directly to poor people do not qualify). If you have large medical expenses, you can also deduct the portion those medical expenses that exceed 7.5% of your adjusted gross income. Finally, there are miscellaneous deductions, such as employee business and investment expenses, that can be deducted if they exceed 2% of your adjusted gross income.


If you receive taxable interest and dividends that exceed $1,500, you must list the amounts and the sources of the income on Schedule B. If the amount is under $1,500, you STILL have to pay taxes on this money; you just do not have to list the amounts and sources.


Persons who are independent contractors have their income documented to the IRS using Form 1099-MISC. Schedule C is used to report income generated either running a sole proprietorship business or to report income that is documented with Form 1099-MISC. Of course, you not only report the income, but also all of the expenses associated with running the business or earning the contract income. A complete discussion of these expenses will be the topic of a future article, but it is important to claim all legitimate deductions, because the net taxable amount is not only subject to income taxes, but also self-employment tax at a 15.3% rate (which is calculated on Schedule SE). Since most people fail to pay quarterly estimated taxes, the combination of income tax at 15% and self-employment tax at 15.3% often results in a rather large tax bill, a bill that can be mitigated if the deductible expenses are properly documented and claimed.



Schedule D is used to report the sale of any capital asset, which includes stocks, mutual funds, bonds or, in some cases, personal property and land (plus any buildings on the land). These transactions are reported whether they generate a gain or loss. If the final result of all the reported transactions is a gain and the gain is long-term (long-term being defined as the sale of an asset that you owned for at least one year and one day), the gain is taxed as a long-term capital gain at a maximum rate of 15%. If the final result of all the reported transactions is a loss, the loss can be used to offset other income up to $3,000. If your loss is more than $3,000, the remaining loss is carried forward to future years where another $3,000 offset can happen each year until the accumulated loss is used up.


These brief descriptions should give you an idea that, sometimes, filing your tax return is not a simple affair. I hope you have found this brief article informative. It is the first of many we will post to this forum to serve our guests. If you have any questions, as them in the GENERAL QUESTIONS, CONCERNS, ETC. section of the Taxes for F1 Visa holders and other Employment based Visas Section and let’s discuss it.