Form 1040 clients are likely to be the backbone of your tax preparation business. To work productively, you need a solid process for client communication and record collection.
Tax rules change frequently, and tax preparers need to stay on top of changes. Here is a guide to completing Form 1040, along with 2025 changes that impact your staff’s work during tax season.
US taxpayers use IRS Form 1040 to file an annual income tax return. Form 1040 is divided into these sections:
Taxpayers may need to complete these additional forms before submitting Form 1040:
Schedule 1 is used to report additional types of income and adjustments that reduce income. Additional income includes unemployment compensation, prize or award money, or gambling winnings. Common adjustments include the student loan interest deduction, self-employment tax deduction, and educator expenses.
Schedule 2 is filed if a taxpayer owes other taxes, such as:
If the filer needs to make an excess advance premium tax credit repayment, Schedule 2 is also used.
This form is used to claim credits that were not claimed on Form 1040 or 1040-SR, such as the foreign tax credit, education credits, and general business credit. Schedule 3 is also used for other payments, such as an amount paid with a request for an extension to file or excess social security tax withheld.
Taxpayers use Form 1040 to report filing status and all sources of income. Income is adjusted based on credits and deductions, and the form is used to calculate the tax liability. At the bottom of Form 1040, the taxpayer reports the tax owed or refund due.
In addition to the forms mentioned above, filers may need to provide other schedules to document the tax liability. Schedule A is required for taking the itemized deduction, and Schedule B reports interest and ordinary dividends.
If your gross income meets the filing threshold (based on your filing status), you must complete Form 1040.
Most taxpayers use Form 1040, but there are two other versions that your tax clients may need:
Form 1040-SR is available as an optional alternative to using Form 1040 for taxpayers who are age 65 or older. Form 1040-SR uses the same schedules and instructions but offers larger print and less complex language.
Form 1040-NR is used if the taxpayer:
Consult with clients to determine which form should be used each tax year.
Most US citizens or permanent residents who work in the US must file a tax return. Specifically, you need to file if these situations apply to you. These rules apply to tax year 2024. 2025 guidance is not available yet.
If a taxpayer qualifies for certain tax credits, the individual may need to file a return.
Remind taxpayers that these types of tax-exempt income must be reported:
Interest on some bonds used to finance government operations and issued by a state, the District of Columbia, or a U.S. territory is reportable but not taxable at the federal level. Municipal bond interest is reported on line 2a of Form 1040.
The portion of benefits that are taxable depends on the taxpayer’s income and filing status. As a result, the income is reported on the tax return.
A taxpayer’s benefits may be taxable if the total of (1) one-half of the benefits, plus (2) all of their other income, including tax-exempt interest, is greater than the base amount for their filing status.
For example, the current base amount is $25,000 for single, head of household, and qualifying surviving spouse filing status.
The taxable portion of Social Security benefits is reported on line 6b of Form 1040.
IRA distributions are reported on line 4a of the 1040, and the taxable amount is posted to line 4b. Pension and annuity distributions are reported on line 5a of the 1040, and the taxable amount is posted to line 5b.
Taxpayers will see several changes to the 2025 Form 1040, including IRS adjustments based on inflation:
For single taxpayers and married individuals filing separately for tax year 2025, the standard deduction rises to $15,750. For married couples filing jointly, the standard deduction rises to $31,500.
Marginal rates have also been adjusted. To illustrate, here are the new income thresholds at the 22% and 24% rates for single filers:
There are still seven marginal rates in 2025.
For qualifying taxpayers with three or more qualifying children, the 2025 maximum Earned Income Tax Credit amount is $8,046, an increase from $7,830 for 2024.
Individuals can contribute up to $23,500 into their 401(k) plans in 2025, an increase from $23,000 for 2024. The same rule applies to 403(b) plans, governmental 457 plans, and the federal government’s Thrift Savings Plan.
OBBBA changed taxation on tip income. Effective for 2025 through 2028, employees and self-employed individuals may deduct qualified tips received in occupations that are listed by the IRS as customarily and regularly receiving tips on or before December 31, 2024.
The maximum annual deduction is $25,000.
Effective for 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay – such as the “half” portion of “time-and-a-half” compensation — that is required by the Fair Labor Standards Act (FLSA) and that is reported on a Form W-2, Form 1099, or other specified statement furnished to the individual.
This change was also due to OBBBA. The maximum annual deduction is $12,500 ($25,000 for joint filers).
Use this process to guide your client through the Form 1040 preparation process.
Emphasize to clients that you need a complete set of tax documents to generate an accurate tax return.
Most taxpayers know that they need to provide W-2s, 1099s, and investment statements. Ask questions to determine other necessary documents, and refer to the prior year’s tax return.
A marriage, a child’s birth, or a spouse’s death may change the taxpayer’s filing status and number of dependents. Check medical deductions and other factors to determine if the filer should use the standard deduction or itemized deduction.
Review Schedule 1 to determine if any of the income categories or income adjustments apply to the taxpayer. Post wages, interest, dividends, retirement distributions, and business income (Schedule C) to determine taxable income.
Review Schedule 2 to confirm any additional taxes owed, and check Schedule 3 to determine additional payments and credits. Calculate the total tax liability.
Post tax withholdings and credits to the payment section, and determine if the client has a refund due or an amount owed.
Review the tax return with the client to confirm that you have all the relevant tax data. Have the client sign and date the return, and ensure that the return is filed on time.
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