Once you start earning, paying your taxes regularly becomes a routine that you can’t skip. Many people find filing income tax returns a tedious and complicated task. However, if you understand the basics, filing tax returns with proper documentation and information will no longer be an issue. Here are 5 things you should know about tax returns.
What is a tax return?
Tax returns allow taxpayers to calculate the tax they owe and analyze the liabilities or overpaid taxes. US tax returns are submitted to the US Internal Revenue Service (IRS) or state tax collection agencies. Sometimes these returns are filed to local tax collection agencies like the California Franchise Tax Board. In most countries, the tax returns must be submitted annually.
Types of tax returns
There are 7 types of tax returns.
Form 1040 – US individual income tax return
Form 1041 – US income tax return for estates and trusts
Form 1065 – US return of partnership income
Form 1099 – Used to report non-employment income like dividends paid from owning a stock, income from interest such as investment or savings account, miscellaneous income like freelancer income, real estate transactions, etc.
Form 1120 – US corporation income tax return
Form 1120-S – US income tax return for an S corporation (A corporation with less than 100 shareholders can choose to form an S corporation).
Form 2290 – Heavy highway vehicle use tax return.
5 things you need to know about tax return
How to organize and prepare this documentation
You need some basic documents to file taxes. Here are some necessary documents you need to organize to file the tax return.
- Personal information like social security number and photo identification
- Bank account numbers
- If available, your last two years of tax returns
- Proof of income like W-2 forms (states your wages and withheld taxes) or if applicable, 1099 forms (information returns).
What affects the amount of tax owed
Many factors determine the tax bill. For example, your tax liability may change depending on your filing status, which might range from “head of household” to “married filing separately,” “married filing jointly,” or “filing as a single taxpayer”. Similarly, your adjustments like moving expenses or student loan interest payments can help determine the adjusted gross income which will alter the amount of tax owed. There are also tax deductions that one can claim based on your age, income, and filing status.
Filing your tax return
Filing your tax return is the simplest way to claim a tax refund. You must have the necessary documents and file them before the due date. While people sometimes rush to get their taxes done, it might lead to a lot of mistakes. Therefore, it is necessary to be patient and collect all necessary documents before submitting for tax return.
Uncommon tax situations
There could be a few uncommon tax situations that might complicate the tax return process. It could be because of some basic mistakes like inaccurate social security numbers, choosing the wrong filing status, unsigned forms, etc which might make the tax return invalid or problematic. For instance, if you overpaid your taxes, you are due a refund. If you don’t specify the government, they will send you a paper check through the mail. Instead, you can get your tax return faster if you add bank account information or opt to split your refund into as many as three accounts. Based on your state, you have to ensure you file the state healthcare individual mandate.
Seeking professional help
While the basic knowledge about the tax return will help you file the document, it is always advisable to seek professional help so that you can avoid any issues in the future and have an expert guide to aid you at any point in the future.
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