- Let's solidify our understanding
of Form 1040 with another example.
with another example.
This time the taxpayer will be a single parent, K.
We will complete his Form 1040, and again,
We will complete his Form 1040,
and again we're going to do it step-by-step.
we're going to do it step by step.
We'll start with his personal information,
name, address, social security number, filing status.
You recall with the Ramona and K example,
they chose to file jointly as a married couple.
In this example, K is a single parent,
so he will choose to file as head of household.
In 2016, 22 million returns were filed
with the choice of head of household.
This is about one return in seven.
Next, K needs to list the members of his family.
In this example, he has three dependents:
In this example, he has three dependents,
his daughters Lilly, Taraz, and Camilla.
his daughters Lily, Tarza, and Kamila.
He is careful to check the child tax credit box
for Tarza and Kamila because they are less than
because they are less than 17 years old.
17 years old.
We know that this is going to be important,
as K computes his child tax credit.
Now, K needs to get his income documents together,
his Form W2 from his employer,
Form 1099 if he's received any payments
Form 1099 if he's received any payments for side businesses,
for side businesses, hisend-of-year bank statements,
his end of year bank statements,
and end of year investment fund statements.
If K takes some time up front
to gather all of these documents together,
all of these documents together,
inputting his income data is much easier.
K starts by entering $70,000 from his W2 Form.
This is his salary for the year.
He also had $300 in interest income from his local bank.
K was also wise enough to set aside $3300
in an individual retirement account, an IRA.
That's $3300 that will not be taxed this year.
K's adjusted gross income is $67,000;
$70,300 in income minus $3,3000 in IRA contributions.
$70,300 in income minus$3,300 in IRA contributions.
Now AGI, or adjusted gross income,
is a very important number.
The US Government uses that number
to identify people's social economic class.
to identify people'ssocial economic class.
For example, using AGI,
we see that single parents, heads of households,
heads of households, haveincomes that are lower
have incomes that are lower than the average person.
than the average person.
For example, in the United States in 2016,
in contrast, for heads of households, single parents,
for heads of households, single parents,
79% of them had an AGIof less than $50,000.
79% of them had AGI of less than $50,000.
For this reason, we have child tax credits
and the earned income tax credit,
that we'll talk about later,
to put money into the hands of the single parents
who have incomes that are lower than the average
for other tax filers.