1040EZ and other short forms may not prove so 'easy' on your wallet
The Internal Revenue Service has a cute name for its latest easy-to-use income tax form: 1040EZ. That title, as well as the simple design of the form, is supposed to attract more people, make it easier for them to fill out, and bring the government more tax revenue.
Along with the older 1040A form, 1040EZ does make tax filing simpler and faster for many people. They are particularly useful for students who have had part-time or summer jobs, but no deductions or tax credits to claim. In some cases they may also be useful for working people who do not itemize deductions nor claim any tax credits or adjustments to income.
Specifically, you can use 1040A if your earnings are solely from wages and other employee compensation, you do not itemize deductions, you claim no credits (except for the political-contributions credit and the earned-income credit), and you claim no adjustments to income except the ''marriage penalty'' deduction and the limited charitable-contributions deduction. In both cases, taxpayers must have earned less than $50,000.
To be eligible for 1040EZ, taxpayers must have single status, have only one exemption, no more than $400 in interest, and claim no deductions or credits except the limited charitable contribution.
While these forms seem to simplify things for both the taxpayer and the IRS, tax planners say people should carefully examine whether they really want to use them instead of the 1040 ''long form.''
While this form is longer and more complicated, the extra effort could save taxpayers several hundred dollars and perhaps bring in a refund when it seemed that taxes were owed to the government. Even people who cannot claim enough deductions to itemize often have enough credits and adjustments to warrant using the longer form.
There are several tax-reducing items that taxpayers using the short 1040A and 1040EZ forms cannot claim:
* Working parents cannot take a credit for the cost of child care.
* People paying for the care of an elderly relative cannot claim a credit for this expense.
* No credit can be taken for energy-saving home improvements, such as storm windows, sealing tape, hot-water-heater ''blankets,'' or a new energy-efficient furnace.
* Unreimbursed business expenses - even something as simple as mileage (20 cents a mile) for a secretary who makes a daily drive to the post office - cannot be claimed as an ''adjustment to income.''
* Contribtuions to an individual retirement account cannot be credited, a move which could reduce taxable income by up to $2,000. The same applies to Keogh deposits.
* Moving expenses cannot be used to reduce your income.
For all of these credits and adjustments to income, you need the 1040. If you filled out the 1040A last year, that is probably the one the IRS sent you this year. This does not mean you have to use it. The IRS usually just sends taxpayers the same form they used the previous year, or the one it thinks they are likely to need. In most cases, this is the shorter form - the one that brings in more revenue.