Either as an individual taxpayer or as a business owner, we are all faced with many options on when where and how we can file our taxes. You may be one of the many taxpayers hoping to find ways by which they can cut down on tax payments but are worried they may go in too deep and end up becoming tax evaders. There is one thing every taxpayer should know—the law allows for taxpayers to choose the option that will allow them the least possible liability. In other words tax avoidance, as opposed to tax evasion, is totally legal.

You may start by doing an extensive tax avoidance planning. One way to do this is to know every possible way you can legally avoid tax. For non-business taxpayers, you may look at your filing status and the related exemptions. You may want to find information on who should file the tax return and who would qualify as dependents considering your filing status.

Knowing what tax forms are available go hand in hand with choosing the filing status that best suits you. To discuss in detail, there are three versions of the federal income tax form an individual can choose from—form 1040EZ, form 1040A and form 1040. The basic rule in choosing a tax form is “the simpler the better.” The IRS is inclined not to audit returns that are made on simpler forms.

The IRS Form 1040, or what is usually called the “long form,” is the most complicated and time-consuming among the three as it is designed to cater to every possible qualification an individual taxpayer has. The IRS form 1040EZ and IRS Form 1040A, on the other hand, are designed to account for a group of taxpayers with more specialized qualifications.

You can file your tax return using an IRS Form 1040EZ if you qualify for the following restrictions: your filing status is single or married filing jointly; you must be under age 65 and not blind; you are claiming any dependents (other than yourselves); your taxable income is less than $100,000; you are not claiming any adjustments to income; the only credit that you can claim is the Earned Income Credit (EIC); the only income you can report for the tax year are from salaries, wages, tips, fellowship grants, or taxable scholarship, APF (Alaska Permanent Fund) dividends), unemployment compensation, and your taxable interest is not over $1,500.

As for the IRS Form 1040A, you will only qualify if you have income only from the following resources: wages, salaries and tips; interest and ordinary dividends, pensions, annuities and IRAs, taxable social security and railroad retirement benefits, taxable scholarship and fellowship grants; capital gains distributions; unemployment compensation; Alaska Permanent Funds dividends.

Start doing your tax planning now.

Related readings: