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Tax season means it’s time to focus

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As employees receive W-2s and independent contractors receive 1099s, many will be anticipating a refund and others may owe money. The connecting bottom line is that taxes must be filed in a timely manner.

Those expecting a refund usually will rush to file as soon as possible. While those expecting to owe the Internal Revenue Service (IRS) will frequently wait until the April 15th deadline.

Many years ago, there were only a few major tax preparation firms, along with accountants, that prepared taxes. Now, small businesses dedicated solely to tax preparation have sprung up all over the Mid-South. These businesses are thriving and experiencing tremendous growth with a business model based on operating only a few months of the year.

This month in On Our Way To Wealthy we will focus on tax-related issues. Although most people choose to employ the services of a tax professional, understanding the concepts is always helpful. Let's begin with a review of some of the various tax forms.

Form 1040EZ

The Form 1040EZ is by far the simplest form to complete. According to the IRS website, Form 1040EZ is used under the following conditions:

Your filing status is single or married filing jointly.

You claim no dependents.

You and your spouse, if filing a joint return, were under age 65 on January 1, 2014, and not blind at the end of 2013.

You have only wages, salaries, tips, taxable scholarship and fellowship grants, unemployment compensation, or Alaska Permanent Fund dividends, and your taxable interest was not over $1,500.

Your taxable income is less than $100,000.

Your earned tips, if any, are included in boxes 5 and 7 of your Form W-2.

You do not owe any household employment taxes on wages you paid to a household employee.

You are not a debtor in a Chapter 11 bankruptcy case filed after Oct. 16, 2005.

You do not claim any adjustments to income, such as a deduction for IRA contributions, a student loan interest deduction, an educator expenses deduction, or a tuition and fees deduction.

You do not claim any credits other than the earned income credit.

Form 1040A

If for any reason you do not qualify to prepare the 1040EZ, then the next option to consider would be Form 1040A. Internal Revenue Service states that 1040A is appropriate if:

Your income is only from wages, salaries, tips, taxable scholarships and fellowship grants, interest, or ordinary dividends, capital gain distributions, pensions, annuities, IRAs, unemployment compensation, taxable social security or railroad retirement benefits, and Alaska Permanent Fund dividends.

Your taxable income is less than $100,000.

You do not itemize deductions.

You did not have an alternative minimum tax adjustment on stock you acquired from the exercise of an incentive stock option.

Your taxes are only from the Tax Table, the alternative minimum tax, recapture of an education credit, Form 8615 (PDF) or the Qualified Dividends and Capital Gain Tax Worksheet.

Your only adjustments to income are the IRA deduction, the student loan interest deduction, the educator expenses deduction, the tuition and fees deduction.

The only credits you are claiming are the credit for child and dependent care expenses, the earned income credit, the credit for the elderly or the disabled, education credits, the child tax credit, the additional child tax credit, or the retirement savings contribution credit.

Form 1040

If Form 1040EZ or 1040A is not suitable for you, then the alternative would be to use Form 1040. Form 1040 is used under the following situations according to IRS:

Your taxable income is $100,000 or more.

You have certain types of income such as unreported tips; certain nontaxable distributions; self-employment earnings; or income received as a partner, a shareholder in an "S" Corporation, or a beneficiary of an estate or trust.

You itemize deductions or claim certain tax credits or adjustments to income.
You owe household employment taxes.

NEXT WEEK: A closer look at deductions and credits at the taxpayer's disposal.