Federal income taxes are essential for every US business and workers to pay to the Internal Revenue Service (IRS), these taxes portray that you are done with your fair share and for this purpose the customers will need to file an annual tax return. You must be wondering what this annual tax return is? Well, this annual tax return determines the total income an individual or business has earned in the entire year, and how much tax they were required to pay on it and how much they have actually paid.
Mostly customers tend to overpay taxes, so in such cases they will get a tax refund; similarly in cases where customers have underpaid then they will surely have to pay the amount due. Tax filing has changed during the recent years and have become quite simplified in some ways, since tax filing can be quite stressful and daunting, and we understand how precious time is for all of our customers, so for this reason we have jotted down a complete cheat sheet that will be helpful for our customers and they can then easily file their taxes both on paper or online. Read on, to find out everything you need to know about filing your taxes.
1: Basics of Tax Filing:
2: Why do we file tax returns?
3: When to file your Tax Return:
4: Who has to file a tax return?
5: Gather your Tax Forms and Documents:
6: W-2 Forms:
7: 1099 Forms:
8: 1098 Forms:
9: Important Documents:
10: Figure out your Filing Status:
11: How to actually file your tax return?
Basics of Tax Filing:
It is very important to understand the basics of a tax return and why it is needed, there are some basic terms that one must be aware of when filing their taxes. There are three basic and specific tax terms that everyone needs to know; the first one is the filing which involves Internal Revenue Service (IRS) asking the recipients to file a tax form and send submit it to them. The second basic term of tax filing is tax claim, this involves the recipients claiming for something on their tax return and qualifying to get it. The third part of the basics is known as schedules, no not the calendar one! Schedule is just another name for tax forms.
Why do we file tax returns?
Each and every worker in the US has to pay federal income taxes, one of the good things about these taxes is that the customers do not have to pay all the taxes at the same time instead the federal government has a rule for its recipients whereby it allows its recipients to annually remove a portion from their annual tax bills, and this process of removal of taxes annually from your paychecks is known as withholding.
The withholding process is done by your employers based on the W-4 form, which involves your personal details and things like how much you are expecting to earn in the upcoming year. Internal revenue service is the federal bureau in charge of income tax collection so for this reason employers are supposed to send these withheld taxes to the internal revenue service. It is solely the Internal Revenue service’s duty to track how much every business, person or organization is supposed to pay.
No matter if you are self-employed or do not have an employer that can withhold your taxes, you will still have to withhold taxes from your salary. You must be wondering how it is done? Or how much do I owe the (IRS)? Well, this is done through estimated tax payments, these are known as the quarterly payments that customers make to ensure that pay the income taxes they owe. At the end of the year each and every customer has to file a tax return whereby you confirm to the internal revenue service’s that you have paid enough taxes that were required. Married couples can opt for filing a joint return which will cover both the spouses.
When to file your Tax Return:
Internal revenue service sets the date for every year and lets the customers know when they will start accepting the returns, as of normally the tax return takes place in the last week of January. The usual tax deadline falls on the April 15th, but due to the on-going pandemic the tax date has been extended to July 15th. This time period when customers can send in their tax returns is known as the tax season.
There are times when customers request an extension in the tax return deadline, in such cases you will have to apply for a tax extension which can give you additional time until October 15th to file your tax return. This extension will only be granted by filing the right internal revenue service’s form within the given deadline. This extension only grants you some time to send-in your tax return, however the tax bill a customer owes needs to be paid by the tax day.
Who has to file a tax return?
Anyone with income in the US has to file a tax return, but some factors that determine whether you need to file or not include; your filing status, total annual income, your age and factors likes if you are dependent of someone. As per the general criteria you must file a return if your total annual income was more than the standard deduction value. You must go through the income threshold and check if you fall under it, incase if you do then you should file a tax return if you find yourself eligible for certain tax credits that are offering a refund.
Gather your Tax Forms and Documents:
In order to complete your tax return you will need certain financial information and for this reason, it is important that you gather all of your documents before filing the tax return. If you are not aware of the forms you need, do not worry USA Tax Settlement has got your back, read on to find out about the forms that you will need in order to complete your tax return.
This W-2 form is used by your employers to report details like how much you have earned annually and how much tax they have already withheld. In case if your company has multiple employers who withheld taxes, then in such a case you will get a W-2 form from each one of them. Make sure the mail all your W-2 forms by January 31st, so you can get yours by early February.
This 1099 form is basically used to report the money that you have earned outside of what is reported in a W-2 form. There are various versions of it based on your income, some of which include; the social security benefits, dividends, incomes from self-employment, distributions of pensions and income from interest. All these important details must be mailed by January 31st like W-2 form so you can get yours by early February. You can also apply for tax relief if you feel the need to reduce the amount of tax you will have to pay.
This 1098 form helps you in deducting expenses and interest payments; these can include your tuition expenses, student loan interest or mortgage interest.
These documents include all the important details, forms, receipts and payments you made during the year, which could include your rental income, lottery winnings, incomes from an installment sale and so on. Other documents that you need to gather include taxes that you have already paid like property taxes, state or local income taxes.
Another important detail that you need to keep in mind is to gather your last year’s tax return specifically the adjusted gross amount or otherwise known as AGI. Your adjusted gross amount from last year’s tax return is used by Internal Revenue services to verify your identity. Also gather your bank account details so that any refund that is to be made can be directly deposited in your bank. If you are claiming any dependents on your return, make sure you have their dates of birth and social security numbers, and not to forget any documents detailing child support or alimony payments that you may have made or received.
Figure out your Filing Status:
The filing status helps you in determining your tax rates and your filings requirements like your eligibility for tax credits and things like the amount of your standard deduction. There are roughly five types of filing statuses, our details mentioned below will help you choose the best one for you.
Single Filing Status:
You can use the single filing status if you are not married or have legally separated. People who opt for this status are known to be single filers. In case if a single filer has dependents living with them then they also qualify for the head of household status.
Head of Household Status:
The head of household status is for those individuals who are living with a qualifying dependent, are not married and have paid more than half of the annual cost of maintaining a home.
Married Joint Filers:
The married joint filing status is for married individuals who are opting for one return to cover both the spouses. By filing jointly married couples can get a higher standard deduction and will pay less tax comparatively who those who file separately.
Married separate Filers:
The married separate filing is for couples who are married but want to file a return separately from their spouse. The common reasons for which couples tend to opt for this filing status is, you being concerned that your spouse may be evading taxes and you do not want to be involved or held liable, getting higher itemized deductions by filing separately, or cases like your spouse having debts that are subjected to refund seizure and so on.
You can qualify for this widower status in cases where your spouse died in the last two years, you have a dependent child and you have not remarried. This status is quite beneficial for widowers and treats you as if you are opting for joint filing, leading you to deduct more and paying lower rates than single filers.
How to actually file your tax return?
To file your tax return you need to start off with completing the basic 1040 form, this form is a federal income tax form and taxpayers who do not use it are nonresident aliens. The rules of the form 1040 are quite simple and nothing too complicated, you start off by adding the total income you have earned annually, then you claim credits and deductions to adjust that income, and then comes the calculation whereby you calculate how much tax you should have paid and how much you have actually paid, is it enough or not. As a proof of your financial situation and to claim deductions and credits you will need to have some forms and documents, for instance having all your W-2’s for the basic 1040 form.
So, by the end of this article we hope our guide has been of some help and now you know the basics of tax filing. If you still need some help regarding any issues that you are facing then you can contact a professional tax settlement company and book yourself a consultation right away!