Tax Forms You Need to Know About

One thing is for certain, there is no shortage of tax forms in this country, and having an understanding for each one is a daunting task, even for most accountants. The most practical approach for taxpayers is to have a general understanding of the forms that might affect them the most. Here are a few to consider, listed in no particular order of importance:

W-4: Employee Withholding Allowance Form

This form determines the amount of federal taxes that are withheld from your paycheck each period. It is important because the number of allowances that you claim will directly affect your paycheck cash flow and the size and scope of a refund or balance due at tax time. It is not in your financial interest to have either a large refund or a balance due, so adjust your withholding allowances accordingly to avoid sizeable balances in either direction.

1040-X: Amended U.S Tax Return

The 1040-X form is used to amend and adjust returns that have already been submitted to the IRS. The most common use of this form stems from a late arriving W2 or 1099 interest statement that was omitted from the original tax calculation. You can also use this form to correct mistakes made by yourself, or by a tax preparer on your tax return and receive compensation from the IRS; taxpayers can amend back up to three years. The 1040-X form is also used in to claim various tax credits, like the home buyer tax credit, and the credit for energy efficient improvements.

8829: Expenses for Business Use of Your Home

This is more commonly known as the home office deduction, and what this form allows you to do is to deduct ordinary home expenses like utilities, taxes, interest, depreciation and insurance from your business income. The office must be used exclusively for business on a regular basis to enable you to take the deduction. To figure the allowed expense, take your total home expenses and multiply that number by this ratio, total office square feet/ total home square feet.

4868: Application for Automatic Extension to File Tax Return

This form allows taxpayers to extend their filing deadline six months, but it is not an extension to pay, only an extension to file. You will still incur penalties and interest for not paying on time, even if you file the extension. The failure to pay penalty is only 0.5% per month of the balance due, while the failure to file penalty is 5% per month of the balance due, with a maximum penalty of 25%.
One other caveat is that if you have no tax liability, or are receiving a refund, there is no penalty to file late. So if you expect a refund, it is not necessary to file an extension.

5695-Residential Energy Credits

This form is used to claim a tax credit resulting from the purchase and installation of energy efficient materials and appliances in your main home. Examples of allowable improvements include upgrades to insulation, windows, doors, central air units, heat pumps, and furnaces that meet energy efficiency requirements.
The credit is non refundable, and amounts to either thirty percent of the improvement cost, or 1,500 dollars whichever is less. Taxpayers would need to file this form in conjunction with form 1040-X to amend your 2009 taxes, if the improvements were made in 2009, improvements made this year can be filed on your 2010 tax return.

Robert Waldeck is a Tax Accountant, and owner of Waldeck Tax. You can find printable tax forms at www.waldecktax.com, and get answers to your online tax questions via his blog.