- Taxes can be a daunting task, especially if you’re a new business owner or have had a complex financial year.
- While the various forms can seem complicated, we’ve outlined which each of the most common forms do for you and when you might be required to use them.
- Consider whether hiring a tax professional to outsource your small business taxes might be beneficial this year.
The IRS website has a ton of tax forms for different types of incomes, expenses, deductions, and other financial reporting. Each of these tax forms carries a different letter or number, which may be confusing to the average American and new small business owners, especially sole proprietorships.
While you may not need a ton of forms when filing tax returns, there are some IRS tax forms that you will likely see each year. Knowing what tax form to use and when to use it can help you file correctly and avoid making costly mistakes.
The most common tax forms include:
1. Form 1040
Form 1040 is the starting point for most taxpayers. It is the standard federal income tax return that taxpayers use to report their income and expenses, claim deductions, and calculate the tax refund for the year. This tax form is comprehensive, and it has other schedules and tax forms tied to it.
Before 2018, Form 1040A and Form 1040EZ were available to taxpayers with smaller tax breaks. However, these tax forms are no longer required. Instead, taxpayers are required to use the designed “long-form” 1040 and 1040-SR tax forms.
1040-SR is a tax form for seniors above 65 years. It uses bigger fonts and an easy-to-use chart to help them compute their tax deductions.
2. Tax Form Attachment (Schedules)
Depending on your situation, you may be required to attach certain tax schedules with your annual tax return. The values calculated on the schedules are posted to Form 1040.
The most common tax schedules include:
3. Form 1040X
If you made a mistake when filing your tax return, you can file an amended tax return using Form 1040X. You must include copies of supporting documents and other tax forms used when filing the original return.
If you are amending an underpayment of your tax return, you can pay the taxes due online. You can also get a refund via direct deposit if you overpaid your taxes in the original tax return.
4. Form W-2
Form W-2 is used by salaried employees. This tax form reports the employee’s income (both federal and state incomes), social security taxes, and Medicare taxes that an employer withheld during the tax year.
It may also disclose the employee’s retirement plan contributions, Health Savings Account contributions, and the amount that an employer paid to the employee’s health insurance. This tax form is mandatory if the employer paid more than $600 in salary during the year.
5. Form W-4
Form W-4 is a record of the amount of taxes withheld by an employer. When starting a new job, the employer may require you to fill out Form W-4 to determine the right amount of tax to withhold on your paycheck.
Depending on the amount you input, you can overpay or underpay the taxes for the year. Any excess taxes will be paid back, whereas an underpayment will require you to pay the balance, and, in some cases, a penalty fee.
6. Form W-9
Form W-9 is a single page tax form that includes a taxpayer’s personal information and social security number. This tax form is mainly used by freelancers and independent contractors to provide tax details when receiving a payment.
You can also use this tax form if you made a real estate transaction or had debt cancelled. Form W-9 is submitted to a bank, employer, or other payers that may require your tax information.
7. Form 1098
If you are paying over $600 in mortgage interest, the IRS will send you Form 1098 in the mail. Form 1098 reports the amount of mortgage interest, mortgage points paid, mortgage insurance premiums, and property taxes paid during the year.
Other variations of Form 1098 include:
- Form 1098-T: Records the amount of tuition fees paid to an educational institution.
- Form 1098-E: Records the amount of student loan interest that a taxpayer paid during the tax year.
8. Form 1099
Form 1099 has multiple variations. It’s a record of incomes received by the taxpayer from other sources besides salaried income from an employer. The 1099 tax form is sent in twos; whoever sends you a copy of this tax form also dispatches a copy to the IRS.
The main 1099 variations include:
- 1099-DIV: A record of dividends, capital gains, and distributions from investments.
- 1099-INT: A record of interest income earned from credit unions, banks, and brokerage accounts.
- 1099-MISC: A record of miscellaneous incomes earned from other sources other than investments. These incomes may include rental income, royalties, prizes, awards, and commissions.
- 1099-NEC: This is the newest 1099 series tax form. Starting in 2020, freelancers, gig workers, and independent contractors are required to report all incomes earned during the year using this form.
9. Form 4868
Taxpayers use Form 4868 to request an extension of the tax return period. When sending this tax form, you should do an estimate of the amount of taxes you owe the IRS and send part or all of the estimated returns to the IRS.
If the estimated payment falls below the actual assessed payment, the IRS may charge interest and a late filing penalty on the amount due. If you are unable to calculate the estimated payments, find a tax professional to help you prepare your taxes and avoid penalties.
10. Form 9465
Form 9465 comes into play if you can’t pay your taxes due in full and want an installment payment plan with the IRS. You can use this tax form if you owe more than $50,000 in taxes and you need more than 120 days to make the full payment.
If the IRS approves an instalment plan request, you will still pay the interest and penalties on the overdue balance. You must pay the balance within 72 months or less, depending on how much is overdue.
For amounts less than $50,000, you can file an online payment agreement application, instead of using Form 9465.
11. Form 4506
If you need copies of past tax returns, use tax Form 4506 to request the information you need from the IRS. When filling in this form, you should provide your personal information, the tax year, and the specific tax returns and forms you want to receive. The IRS charges $50 for each form they send you at your request.
Once again, taxes are just around the corner and you might be uncertain about what forms to fill out and how the various tax forms and schedules fit together. Take some time to review each form and work ahead on your return to avoid paying late fees.
If you’re struggling with your taxes or have had a particularly complex financial year, such as starting a new business or adding employees for the first time, consider hiring a tax professional to help you file. If that isn’t possible, at least be sure that you’re keeping on top of your business accounting using software throughout the year to set you up for success in the following tax year.