Alabama Form 40 Line by Line Guide
Did you know there are 9 States that don't require residents to pay a personal income tax? Folks that live in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming are exempt from this extra bill. Furthermore, 7 other states simply enforce a flat tax rate. So what's my point?
People who live in these states are able to buy more stuff because they don't pay any state tax. Jealous?
But for the rest of us, residential income tax is a necessary evil and one that takes a serious bite out of our disposable income. And while all the state forms are designed to collect the same data, they're all constructed differently. What follows is a breakdown of Form 40, the Alabama Individual Income Tax Return. If you don't live in Alabama, don't worry, we'll be tackling the other 34 states soon enough.
Pound for pound, the Alabama return is one of the easiest out there. In fact, you can use Form 40A (an even simpler version) if you meet the following conditions. You'll have to be a full-time resident who won't itemize, won't apply for any income adjustments, and won't need to fill out any schedules. Basically you'll have to still be living at home with Mom.
For our purposes we're going to tackle the more complicated form, the one that consists of 2 pages and 4 parts. So Alabamians, lets get to it.
Begin by filling out your name, address, and Social Security number at the top of the form. Alabama allows for a $1,500 exemption (if you're single or married filing separately) and $3,000 if you're married (filing jointly or a head of a household).
Enter all your Alabama withholdings on 5a and your total income on Line 5b. On Line 6 enter any dividend or interest payments. Just attach Schedule B if this added up to more than $1,500. On Line 7 enter any other income you've been fortunate enough to earn. Then add Lines 6 and 7 to get your total income and enter that amount on Line 8.
On Line 9 enter in any adjustments to your income (we'll figure this later). To finish this section, subtract Line 9 from Line 8 to yield your adjusted gross income (AGI). Remember your AGI is the driver of your return. The higher it is the more tax you'll pay.
If you itemize deductions, and you should, fill out Schedule A and enter the total amount on Line 11. If you don't itemize, simply enter the standard deduction. On Line 12 enter the federal tax deduction from page 2 of your 1040. On Line 13 enter your personal exemption and on Line 5 enter your dependent exemptions. Next, add Lines 11 through 14 to get your total deductions and put that on Line 15.
On Line 16 enter your taxable income. To figure it, subtract Line 15 from Line 10. On Line 17 enter the amount of income tax that's due. This number is based on your income; just remember to look up the tax table in the instruction booklet to get the exact amount.
Once you work through your credits (and enter them on Line 18), subtract Line 18 from Line 17 to reveal the amount of tax you owe Alabama. Just don't forget to work through page 9 of the worksheet to see if you're responsible for a consumer use tax. A consumer use tax is payable on goods and services you've acquired from other states. In other words, you'll owe Alabama a 4% tax on all items you've bought out of state.
Line 20 is slotted for a $1 or $2 voluntary donation to either the Democrat or Republican parties. When you're ready, add Lines 19 and 20 to get your total tax and put that amount on Line 21.
On Line 22 enter your Alabama withholdings; you can find it on your W-2. On Line 23 enter any estimated tax payments, and if you've filed an amended return in the past, enter that amount on Line 24. Then add Lines 23 and 24 with the total going on Line 25. If you have a refund coming from an amended return, enter that on Line 26. Complete the payments section by subtracting Line 26 from Line 25 and put the total on Line 27.
Now subtract Line 27 from 21 to find out how much you owe. If this number is zero, move on to Line 30. If not, see page 11 of the instruction book to see if you also owe a penalty.To see how much you overpaid, subtract Line 21 from Line 27 then enter the total on Line 30. You can also enter the amount you want carried into next year on Line 31.
Enter your donations from Line 2 Schedule DC on Line 32. Then on Line 33 enter the amount your refund, just subtract Line 31 and Line 32 from Line 30 to figure how much cash you're getting back. And that's that. Just remember to sign (in black ink) and date on page 2.
Remember if you're using this form, then you'll need to work through Parts 1 through 4 on page 2. To learn how, follow along.
On Line 1 enter any alimony you've received and on Line 2 record your businesses profit or loss. On Line 3 enter any profit or loss from a real estate transaction. On Line 4a and 5a enter distributions from an IRA or an annuity, just be sure to fill in the taxable amount on Lines 4b and 5b. On Line 6 enter any rents or partnerships from Schedule E. Lines 7 and 8 (farm and other income) need to be entered before you can add Lines 1 through 8 to get your total miscellaneous income.
Line 1 is looking for any IRA deduction and Line 2 for any payments to a Keogh retirement plan or a self-employment retirement vehicle. On Line 3 enter a penalty for an early withdrawal pertaining to those plans. Line 4 is for outgoing alimony payments.
Lines 5 and 6 are for adoption and moving expenses. Line 7 is a dandy health deduction for self-employed folks. Line 8 is a slotted for any payment to the Alabama college education savings program and Line 9 is health insurance for small businesses. Lastly Line 10 asks if you retrofitted or upgraded home to resist wind or flood damage. When you've completed all that, add Lines 1 through 10 and enter your total adjustments on Line 11.
Enter your dependents' names, Social Security numbers, their relationship to you in the columns. Then record the total amount of dependents you claimed on Line 1b. On Line 2, multiply your dependents by the amount you're allowed per dependent, just check page 10 of the instruction booklet for specifics.
Part 4 has to do with all your general information. Start by checking off the amount of time you lived in Alabama. If you filed an Alabama return last year, check yes in Box 2; if not, you'll have to state the reason why. Then record the name and address of your employer(s) on Line 3 and the amount of your federal adjusted gross income on Line 4. If you have income reported on your federal return but not your Alabama return, enter it here. Just remember to record your sources.
