For many people, "What is a simple tax return?" sounds like a trick question with no real answer. But, if you ask the IRS, the answer is a tax return filed with the shortest tax form, the Form 1040-EZ. Each year when you file your taxes, you have three options: the short Form 1040-EZ, the medium-length Form 1040A, and the long Form 1040. However, it's not always in your best interests to use the shortest form when you file your taxes.
Who Can Use Form 1040-EZ
To use Form 1040-EZ, you must meet several criteria. Your filing status must be either single or married filing jointly; both you and your spouse — if you're married — must be under 65 years old at the end of the tax year and not blind; and you can't claim any dependents. In addition, your taxable income must be less than $100,000 and can only be comprised of wages, salaries, tips, scholarship and fellowships, unemployment benefits and Alaska Permanent fund dividends. Plus, all of your tips must be reported on a W-2 and your taxable interest can't exceed $1,500. Finally, you can't be a debtor in a Chapter 11 bankruptcy, and you can't have received advance payments of the premium tax credit for yourself, your spouse, or anyone you signed up for health insurance coverage who isn't being claimed as a personal exemption on someone else's tax return.
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Benefits of Using Other Forms
Just because you can use Form 1040-EZ doesn't mean it's in your best interests to do so. The only tax credit you can claim on Form 1040-EZ is the earned income tax credit, and you're not allowed to claim any deductions. If you qualify for additional income tax credits and deductions that you need to use another form to claim, you're not going to get in trouble with the IRS if you file using Form 1040-EZ because you're not legally required to claim them.
However, if you use the Form 1040-EZ as a shortcut to doing your taxes, you may pay more in taxes than you need to. For example, if you made a contribution to a traditional IRA and are entitled to claim the contribution as a deduction on your taxes, you could file your taxes with Form 1040-EZ and forgo the deduction, but you'd be paying extra in taxes. In some cases, that same IRA contribution also could qualify you for the Retirement Savings Contribution that could save you up to an extra $1,000 on your income taxes. But, you'd miss out on both your deduction and your tax credit because you opted to use the simple tax return form.