Purpose of 1040 Form
Form 1040 needs to be filed for the following reasons:
1. Legal Requirement: Individuals are required by law to report their income and pay taxes on it. It is a legal obligation of the person having income more than the standard deduction to report their income to the government. Failure to file the form may result in penalties, fines, and other legal consequences.
2. Reporting Income: It provides a structured way in which a person can report all sources of income, including wages, salaries, capital gains, rental income, and more. Reporting all income accurately helps ensure compliance with tax laws.
3. Tax Calculation: By filing Form 1040 an individual determines his tax liability and can calculate how much tax he owes or how much refund he is entitled to. It considers various factors such as the income of the person, deductions and credits availed, and tax payments throughout the year for determining the total tax liability.
4. Claiming Deductions and Credits: The form allows to claim deductions and credits that a person qualifies for, which can reduce the total taxable income and ultimately lower the tax liability. These deductions and credits may include expenses like mortgage interest, education expenses, and other costs.
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