USA Tax Returns : Types and Applicability

US TAX RETURNS

- CA Vishal Jagetiya, CA Shivam Thakkar

1. Introduction

The U.S. tax system is set up under both a federal and state level. There are several types of taxes such as income, sales, capital gains, etc. Federal and state taxes are completely separate and each one has is own authority to charge taxes. The federal government doesn’t have the right to interfere with state taxation. Each state has its own tax system that is differentiated from the other states. Tax Returns are generally prepared using forms prescribed by the IRS or other applicable taxing authority.

2. Types of Returns

(I) Form – 1040

By Whom? The IRS Tax Form 1040 used for Personal federal income tax returns filed by United States residents
What it shows? The form calculates the total taxable income of the taxpayer and determines how much is to be paid or refunded by the government.
But When? Income tax returns for individual calendar year taxpayers are due by Tax Day, which is usually April 15 of the next year, except when April 15 falls on a Saturday, Sunday, or a legal holiday.
Variants of 1040: For filing the regular tax return, in addition to the standard Form 1040, there are also two variants: the 1040NR and the 1040X.Form 1040NR is used by taxpayers who are considered “non-resident aliens” for tax purposes.
Form 1040X (officially, the “Amended U.S. Individual Tax Return”) is used for make corrections on Form 1040, Form 1040A, and Form 1040EZ tax returns that been previously filed (note: the 1040A and 1040EZ were discontinued starting with tax year 2018, but a 1040X may still be filed amending one of these tax forms filed for previous years).

(II) Form – 1065

By Whom and What it shows? Partnerships file an information return to report their income, gains, losses, deductions, credits, etc.
Pay Tax by Whom under Partnership? A partnership does not pay tax on its income but “passes through” any profits or losses to its partners. Partners must include partnership items on their tax or information returns. The partnership, as well as an entity treated as a partnership for federal income tax purposes, uses Form 1065, U.S. Return of Partnership Income, to list this information. An allocation of the items is made to each partner on a Schedule K-1, Partner’s Share of Income, Deductions, Credits, Etc., based on their ownership interests. Even though no tax is due on a partnership return, it is a vital piece of information for the IRS to use in checking that partners pay their taxes on partnership items.
Completion of the form can be confusing and complex, so it’s advisable to work with a knowledgeable tax professionals.

  (III) Form – 1041

By whom to file? In the year of a person’s death, he or she leaves both personal income and, in some cases, estate income. That’s why the person dealing with the estate of a deceased person will have to file personal income taxes for the deceased and, potentially, estate income taxes, too.

If the estate that a person leaves behind has income sources, that income will be reported on Form 1041.

What its report? The return reports income, capital gains, deductions, and losses, but subject to somewhat different rules than those that apply to living individuals.
When to file? One thing that is unique about Form 1041 is the timeline for filing the document. Because an estate year begins on the date of the asset owner’s death and ends on December 31 of that year, this often does not give much time for tax preparers and beneficiaries to meet deadlines. The executor is able to file a form that allows them to set up a fiscal year that runs to the last day of the month prior to the 12-month anniversary of the asset holder’s death. This gives the executor and tax preparers 12 months (or more) to file the proper income tax returns on the estate.
Income to whom? Income must go to the estate to be reported on Form 1041. It can be an important distinction because not everything a decedent owned will become part of his estate. A bank or investment account with a payable-on-death designation would go directly to the named beneficiary. The estate would, therefore, not count interest earned by this account as income. The beneficiary would have to report the interest on their tax return.

(IV) Form – 1120

By Whom? U.S. Income Tax Return for Corporation, is used by C corporations for tax returns. A corporation pays income tax by filing a corporate tax return on Form 1120 and paying the taxes as indicated by this return. Corporate income taxes are paid at the corporate income tax rate, not the personal tax rate. Also used to report income for other business entities that have elected to be taxed as a corporation (like LLC).
When? Form 1120 must be filed by the 15th day of the 3rd month after the end of your corporation’s tax year. If your corporation has a December 31 tax year-end, you would need to file this tax report by March 31 of the following year.
Series of 1120: 1120S:U.S. Income Tax Return for an S Corporation, is used by S corporations for tax returns.1120C: U.S. Income Tax Return for Cooperative Associations, is used by cooperatives for tax returns

1120H: U.S. Income Tax Return for Homeowners Associations, is used by condominium and housing associations for tax returns.

(V) Form – 1095

Why? The Affordable Care Act requires people to have health coverage that meets certain standards (called qualifying health coverage or minimal essential coverage). These forms help determine if you the required health insurance under the Act.
Series of 1095 Form 1095A:Health Insurance Marketplace Statement is for people who have health insurance through the Health Insurance Marketplace, often called an exchange.Form 1095B: Health Coverage is mailed to individuals by the insurer to report minimum essential coverage. The form details the type of coverage, the months of the year the coverage was provided and the names of those covered by the plan.  This can affect your eligibility for the Premium Tax Credit so it is important to report this information with your tax return.

Form 1095C: The 1095-C form for Employer-Provided Health Insurance Offer and Coverage Insurance. It is used by larger companies with 50 or more full-time or full-time equivalent employees.  This form states the health insurance coverage the employer offered and whether or not the employee took advantage of it.

 (VI) Form – 1098

What it reports? Form 1098, Mortgage Interest Statement, is an Internal Revenue Service (IRS) form that’s used to report the amount of interest and related expenses paid on a mortgage during the tax year by an individual or a sole proprietor.
When? When the payment amount totals $600 or more. In other words, if you paid $600 or more for the previous year in interest and points on a mortgage, your lender is required to send this form to you
What’s the use by IRS? The IRS uses this information to ensure proper financial reporting for lenders and other entities that receive interest payments of $600 or more.
Types of 1098 Form 1098-C:Contributions of Motor Vehicles, Boats, and Airplanes, reports charitable contributions of motor vehicles. The form provides information about the donation, including the type of vehicle, the vehicle’s identification number, the date of the donation and the value of the vehicle.

Form 1098-E: Form 1098-E reports the interest paid on qualified student loans during the tax year. The organization that carries your student loan must send you a copy of Form 1098-E by January 31 if you paid at least $600 in interest.

Form 1098-T: Most taxpayers can take a deduction for tuition and related expenses reported on the 1098-T, regardless of whether they itemize, although this deduction also phases out for higher-income taxpayers. The form also reports any scholarships and grants received through the school that may reduce the taxpayer’s allowable deduction or credit.

(VII) Form – 1099

When to generate? It’s a record that an entity or person (not your employer) gave or paid you money. The payer usually has to generate the Form 1099 and send copies to you and the IRS.
Major Types of 1099 1099B:It’s covers income from the sale of several types of securities as well as some types of bartering that take place via bartering exchanges, typically websites. A 1099 isn’t usually required if you barter with someone directly, though you may have to report the income.

1099 DIV: To report the dividends and other distributions you receive during the year. These payments are different than the income you earn from selling stocks. Rather, it is a payment of the corporation’s earnings directly to shareholders.

1099 INT: These interest payments are also taxable and are usually reported to you. Taxpayers receive this form from banks where they have interest bearing accounts.

1099 MISC: if you are an independent contractor or self-employed you should receive a Form 1099-MISC from each business client that pays you at least $600 during the tax year. The income you receive from each job you take should be reported to you on Form 1099-MISC. When you prepare your tax return, the IRS requires you to report all of this income and pay income tax on it. You are still required to report all of your income even if you do not receive a 1099-MISC.


(VII) Form – 5498

For Whom? File this form for each person for whom you maintained any individual retirement arrangement (IRA), including a deemed IRA under section 408(q). Your IRA trustee or issuer – not you – is required to file this form with the IRS by May 31. When you save for retirement with an individual retirement arrangement, you probably receive a Form 5498 each year.
Major Types of Forms Form 5498:IRA Contribution Information reports information about individual retirement accounts such as traditional IRAs, Roth IRAs, SEP IRAs and SIMPLE IRA plans.Form 5498-ESA: It report information about Coverdell Education saving accounts.

Form 5498-SA: It reports information about health savings accounts (HSAs).

 (VIII) Form – W (series)

Form W-2

For Whom? Every employer engaged in a trade or business who pays remuneration, including noncash payments of $600 or more for the year (all amounts if any income, social security, or Medicare tax was withheld) for services performed by an employee must file a Form W-2 for each employee.
Obligations: The IRS uses W-2 forms to track the employee’s tax obligation. W-2 forms are divided into state and federal sections since employees must file taxes on both levels. There are fields that provide the employer’s information, including the company’s Employer Identification Number (EIN) (federal) and the employer’s state ID number. The remaining fields mostly focus on the details of the employee’s income from the previous year.

 Form W-2G:

For Whom? A tax-exempt organization sponsoring a gaming event must file Form W-2G when an individual wins a prize over a specific value amount.
Reporting: The form is used to report gambling winnings or to report both gambling winnings and any federal income tax withheld on the winnings.

Form W-4:

Reporting: Employees fill out a W-4 form to let employers know how much tax to withhold from their paycheck based on filing status, dependents, anticipated tax credits and deductions, etc. If you don’t fill it out correctly, you may end up owing taxes when you file your return. The IRS revamped the form for 2020 with the aim of making it easier to fill out. The employer uses the W-4 to calculate certain payroll taxes and remits the taxes to the IRS and the state on the employee’s behalf. Employees can change their withholding at any time by submitting a new W-4 to their employer. Typically employee have to file W-4 for each job. There are many other forms in W series also.

Conclusion:
The mission of the IRS comes with a responsibility to operate with the utmost integrity, accountability and transparency. The American tax system is based on voluntary compliance and supported by appropriate enforcement. As part of our efforts to close the tax gap, IRS will pursue innovative approaches to understand, detect and resolve potential noncompliance. IRS will use behavioral insights on how people process and react to information. This will inform how IRS design programs to encourage voluntary compliance. IRS will continue to use data to drive decisions and make the most effective use of our resources.

About Chintan Patel FCA, CPA(USA), Cert.IFRS(ICAI), CISA (USA), DISA, DIRM

CA Chintan Patel is a partner of Naresh J. Patel & Co. Chartered Accountants (www.nareshco.com). Key Professional Contributions: Immediate Past Chairman of Ahmedabad Branch of WIRC of ICAI, Co-author of book on Ind AS & ICDS published by Taxmann, Trainer/Faculty at more than 300 seminars/conferences. He has over 15 years of post qualification experience working with SMCs, MNCs on International GAAP, Companies Act, 2013, GST and other advisory.
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