What Tax Form Should I Be Using?

The approaching tax season will bring the usual conflicting emotions. Some filers eagerly anticipate getting a large refund that can often be a needed financial boon. Others either expect little back or know that they will have to pay more in. For the latter group, tax season typically involves significant dread.

This dread can often be due as much to the massive amount of paperwork involved as to how much has to be paid. As much talk as there has been about simplifying the tax code and making it easier to file, the tax code remains voluminous, with a myriad amount of rules and exceptions. However, knowing a few basics can go a long way for most taxpayers.

The most basic form to be filed by all taxpayers (or just those needing to claim a refund) is Form 1040. There are several versions of the 1040, and the right one to use depends on the complexity of your finances as well as your citizenship or residency status. Versions include the 1040, 1040A, 1040EZ, and 1040NR.

The normal deadline for filing is April 15, although that is often extended due to weekends or holidays. In 2018, the deadline will be April 17. Usually, you will need to attach certain other forms to the 1040. Some of the most common ones are discussed below.

1. Schedule D

Schedule D must be filed in order to report certain capital gains and losses. It includes separate sections for gains or losses on short-term capital assets (those held for no longer than one year) and on long-term capital assets (those held for longer than one year). Capital assets are broadly defined as personal property that may be sold or traded, including stocks, bonds, real estate, and vehicles. Taxes on long-term assets are generally lower than those on short-term assets.

The filing requirement for Schedule D applies if you sell or trade a capital asset, and that transaction is not reported on another form or schedule. Likewise, when capital gains distributions, such as dividends, are not reported directly on the appropriate 1040 form, then they must be reported on Schedule D. This form is also used to report certain involuntary conversions and bad debts.

One noteworthy exception to the filing requirement for Schedule D is selling your main home. As long as you owned and lived in your main home for at least two of the last five years, then you do not have to report the sale unless the gain exceeded $250,000 ($500,000 for a couple). You may generally only take this benefit once in a two-year period. There are some exceptions, such as moving for employment, that allow you to still take the benefit even if you do not meet these tests.