A Beginner's Guide to Filing a Tax Return
** Our Trainers are not tax advisors nor do we provide specific tax advice in this blog. The purpose of this blog post is to provide a general overview.
If you had an on-going income source this past year, you’ll likely need to file a tax return. Your return is the government’s way of documenting and collecting on the taxes you owe, which pay for all types of government services.
Your employer will typically withhold taxes from your paycheck throughout the year, but it may not be enough to cover your tax bill, in which case you’ll owe Uncle Sam. Your tax contributions throughout the year may also have been too much — resulting in a refund.
But there are many scenarios that make filing your taxes more complicated. For instance, not everyone works in a wage-earning role. Some people earn income as an independent contractor or receive dividends from investments. Additionally, there are numerous ways to reduce your taxable income, thereby, reducing the taxes you’ll owe.
Because of all these nuances, taxes can feel intimidating. Here’s a breakdown of the basics of a tax return to ensure you’re prepared to file your taxes this season.
What is a tax return?
A tax return is used as documentation of a taxpayer’s income, expenses and other relevant tax information throughout the calendar year to determine that person’s tax liability. Your tax return calculates whether you owe additional taxes — separate from the amount you’ve already paid in for the year — or if the government owes you a refund.
Federal tax returns are filed annually with the Internal Revenue Service (IRS). Depending on where you live, you may also be required to file a state tax return.
The deadline to file your federal tax return is April 15, unless you file for an extension using Form 4868. An extension pushes your tax filing deadline to October 15, but it won’t include an extension for actually paying your taxes. Instead, you’ll need to estimate and pay the taxes you’ll owe by the standard deadline to avoid any penalties.
Common tax terms you need to know
While this doesn’t cover all the tax terminology out there, here are some of the most common terms you should become familiar with.
Tax filing status
You’ll need to choose whether to file as a single taxpayer, head of household (unmarried people paying at least 50% of living expenses for dependents), married filing separately or married filing jointly. You may also qualify to file as a widow or widower if you recently lost your spouse and are supporting a child.
Tax deductions
A deduction is an expense or adjustment that lowers your taxable income. For example, you can deduct the interest you paid toward your mortgage and the contributions you made to your 401k or health savings account (HSA).
Standard Deductions vs Itemized Deductions
The standard deduction will be more advantageous than an itemized deduction for most people with the new tax law. Therefore, previously deducted items such as charitable donations, medical expenses, mortgage interest, can still be deducted by itemizing. However, unless the total amount of these deductions exceed the standard deduction, it is likely they will be unused and there is no need to provide these as documentation to substantiate the tax return. However, if the itemized deduction is taken instead of the standard deduction, then documentation will be required as usual.
Tax credits
A tax credit decreases the amount of taxes you’ll owe dollar-for-dollar. Some of the most common tax credits include the Earned Income Tax Credit (EITC), the Child and Dependent Care Credit and the Lifetime Learning Credit.
Deductions and credits vary depending on your tax filing status and whether you choose to itemize or take the standard deduction.
What do I need to file my taxes?
The tax forms and documentation — like receipts — you’ll need to file your taxes will vary depending on your financial situation. Here’s a brief overview to give you a starting point.
Personal information. You’ll need each of your family member’s Social Security numbers and birth dates.
Income tax forms. This may include W-2s and various 1099 tax forms. Some of the most common scenarios that require a 1099 include work performed as an independent contractor or freelancer, and income received from interest and investments.
Relevant documentation for deductions and credits. You should keep track of expenses that can lower your tax burden. For example, you can deduct qualifying education expenses and charitable donations. But you’ll need records to claim these deductions.
Check out our complete checklist to help collect all the needed documents before filing your taxes.
How to file a tax return
You have several options when it comes to filing your taxes:
File your tax return electronically. E-filing is generally considered safe and fast. Use a trusted tax software program, like TurboTax or H&R Block, to guide you through the process. If you have a simple tax return, this service is typically free for federal tax filing. However, you may need to pay a fee if you have multiple streams of income or other complex tax situations.
File a paper return. Use Form 1040 and its provided instructions to complete your tax return. Mail your return and payment directly to the IRS. This option is free, but you’re basically on your own when it comes to figuring out the ins and outs of filing.
Seek professional assistance. Meet with an accountant or tax preparer to help complete your tax return and maximize your refund.
No matter how you choose to file your taxes, your goal should always be to reduce your tax liability and maximize your refund within the parameters of the law.