• Qualifying adoption expenses paid by your employer
• Child support payments
• Gifts, bequests, and inheritances
• Workers' compensation benefits
• Meals and lodging for the convenience of your employer
• Compensatory damages awarded for physical injury or physical sickness
• Welfare benefits
• Cash rebates from a dealer or manufacturer
• Life insurance proceeds paid to you because of the death of the insured person
• Money received by degree candidates for qualified scholarships or fellowships

Your 1040 Tax Services representative can help you understand what portions of your income are taxable and non taxable. Click here to find the office nearest you.

Should You Itemize?
Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. Money paid for medical care, mortgage interest, taxes, contributions, casualty losses, and miscellaneous deductions can reduce your taxes. If the total amount spent on those categories is more than the standard deduction, you can usually benefit by itemizing.

For the 2009 tax year, the standard adjustments are:

Single — $5,700
Married Filing Jointly — $11,400
Married Filing Separately — $5,700
Head of Household — $8,350
Qualifying Widow(er) — $11,400

The standard deduction amount is more for taxpayers age 65 or older and for those who are blind. Also, in 2009, the standard deduction may be increased for certain state or local real estate taxes paid, sales and excise taxes paid on the purchase of certain new vehicles and net disaster losses on a federal disaster event. It is generally less for those who can be claimed as a dependent on some other taxpayer’s return.

Your itemized deductions may be limited if your adjusted gross income is more than $166,800, or $83,400 for Married Filing Separately. This limit applies to all itemized deductions except medical and dental expenses, casualty and theft losses, gambling losses, and investment interest.

When a married couple files separate returns and one spouse itemizes deductions, the other spouse must also itemize and cannot claim the standard deduction.

There are some taxpayers who are not eligible for the standard deduction. They include nonresident aliens, dual-status aliens, and individuals who file returns for periods of less than 12 months.

Your 1040 Tax Services, Inc. representative can help you understand whether it would be beneficial for you to itemize your tax return. Click here to find the office nearest you.

Determining Filing Status
Your filing status on your federal tax return is a category that identifies you based on your marital and family situation. It is an important factor in determining whether you must file a return, the amount of your standard deduction and your correct amount of tax. If more than one filing status applies to you, you may choose the one that gives you the lowest tax obligation.

There are five possible filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household and Qualifying Widow(er) with Dependent Child. Your marital status on the last day of the year determines your status for the entire year.

Generally, if you are unmarried, divorced or legally separated according to your state law, your filing status is Single.

If you are married, you and your spouse may file either a joint return or separate returns. If your spouse died during the year and you have not remarried, you may still file a joint return with that spouse for the year of death.

Generally, to qualify for Head of Household status, you must be unmarried and have provided more than half the cost of keeping up a home that was the main home for yourself and a qualifying person for more than half the year. You may also qualify if you are married but did not live with your spouse at any time during the last six months of the tax year and you provided more than half the cost of keeping up a home for you and your qualifying person for more than half the year. If your spouse died during 2007 or 2008, you may be able to file as a Qualifying Widow or Widower.

To do this you must meet all four of the following tests:

1. You were entitled to file a joint return with your spouse in the year of the spouse's death.
2. You did not remarry before the end of 2009.
3. You have a child or stepchild who qualifies as your dependent for the year (foster children do not qualify).
4. You paid more than half the cost of keeping up your home, which was the main home of that child, for the whole year.

Your 1040 Tax Services, Inc. representative can help you understand which filing status you should use. Click here to find the office nearest you.

Which Form Should You File?
It can be challenging to determine which federal form to file: 1040, 1040A, or 1040EZ. Following are some general guidelines about who should use which form.

1040EZ
This is the simplest form to use and is best for taxpayers with few or no itemized deductions. Following are some of guidelines that apply for taxpayers who wish to use form 1040EZ.

• Taxable income below $100,000
• Single or Married Filing Jointly
• Under age 65 and not blind
• No dependents
• Interest income of $1,500 or less
• No adjustments to income
• Earned income credit is the only possible credit to claim
• Received no Advance Earned Income payments
• No household employment taxes for wages paid to a household employee
• Not claiming the additional standard deduction for real estate taxes, taxes on the purchase of a new motor vehicle, or disaster losses.

1040A
This form is still simple to use, but covers several items not addressed by form 1040EZ. Following are some of guidelines that apply for taxpayers who wish to use form 1040A.

• Taxable income below $100,000
• Capital gain distributions, but no other capital gains or losses
• Only tax credits for child tax, additional child tax, education, earned income, child and dependent care expenses, retirement savings contributions, elderly or disabled, making work pay credit and government retiree credit.
• Only deductions for IRA contributions, student loan interest, educator expenses or higher education tuition and fees
• No itemized deductions