Understand Basics Of Your Income Tax Return

Wednesday, January 16, 2013, AM | Leave Comment

It’s that time of the year again when we have to file our income tax return. A surprising number of taxpayers remain vague about basic tax knowledge, preferring instead to transfer full ownership of their returns to a professional or computer system.

This is the middle of January. You may or may not have received your W-2 Form(s) and related statements – all your 1099(s). If you have, start working on your tax return. You can do it now in a more relaxed environment.

The closer the deadline approaches, the more nervous many folks get. Avoid nervousness and start working on your tax return now.

This post is dedicated to folks who don’t do their income tax returns but instead, get them done by professionals. It will give you a basic understanding of what’s involved when you eventually file your tax returns.

Understand Basics Of Your Income Tax Return

In any case, some taxpayers will get refund from Internal Revenue Service (better known as IRS) and some will pay what they owe to IRS.

Filing tax returns, for some, is like going to the dentist. If you have flossed once a day and brushed twice a day regularly, then going to the dentist should be a breeze and not something to dread upon.

On the same token, if you have kept records of all your income and expenses (tax deductible or not – because you might not know it at the time), then figuring out your tax returns should be a breeze as well.

The U.S. tax system is progressive, which means the more income you earn, the more taxes you pay. It seems that, in many cases, the reverse is true. Your total earned income is known as gross income.

Einstein didn’t think of the U.S. tax system in reverse…

“The hardest thing in the world to understand is the income tax.” – Albert Einstein, physicist.

Well! It may be connected to his theory of relativity but, being a physicist that he was, he didn’t think of the U.S. tax system in reverse. It would have been a lot easier for him if he understood two things:

  • The more you make, the less you pay – ever heard of loopholes?
  • The less you make, the more you pay – never heard of loopholes?

If you like to surf the Internet, for your own sanity later, at least every quarter – that’s four times a year – visit What’s hot on IRS website and get updated for any changes in taxes.

By the way, you might want to take advantage of the Free IRS Offer for Tax Help.

I do my taxes myself. I have done it since when I first moved to the States in the 70s except the very first year when I had it done by a professional. It took him like 5 minutes to do it and charged me $5 out of a total refund of $9. My net was $4. I was so happy.

Need to file tax return

Contrary to popular belief, not everyone needs to file taxes. Generally, you must file if your gross income exceeds the minimum level set by the government. Follow IRS guidelines and see if you need to file Federal Income Tax return. Most people do.

Do you need more time beyond April 15?

It may be that circumstances prevent you from filing your tax return by the deadline. The IRS grants six-month extensions to those who apply in a timely manner. In that case, the last date could be October 15.

Keep in mind, however, that this only allows additional time to file your tax claim; you still have to pay the estimated amount due by the deadline. Extension form (4868) can be downloaded from the IRS website. Beware of Filing Late and/or Paying Late.

Your gross income

This includes your W-2(s), received from your employer(s), plus any other non-W2 income for the year that the IRS would want you to report.

Taxes 1040 Form

Download tax forms

Once you know your gross income, you can then download the tax return files accordingly.

After you click on IRS forms and instructions, scroll down the list for what you need. The list is in numerical order such as Form 1040 etc.

Essentially, you need Form 1040 but with a flavor to your taste. These files are down loadable Adobe file format (PDF).

  • Form 1040 – U.S. Individual Income Tax Return if your interests and dividends are more than a certain amount and you itemize.

  • For itemized deductions, you need Schedules A,B,C etc.

  • Form 1040A – U.S. Individual Income Tax Return if your interests and dividends are less than a certain amount and you don’t itemize.

  • Form 1040-EZ – Income Tax Return for Single and Joint Filers With No Dependents.

  • Form 1040-ES – Estimated Tax for Individuals.

Filing status

Determine what your filing status is. You can do your taxes under one of the following status filings:

  • Single
  • Married and filing jointly
  • Married and filing separately
  • Head of household
  • Tax payments are based on these variables, and each carries its own deductions and exemptions.

Deductions – Itemized or Standard

Figure out why you should do one or the other, to your advantage.

  • Itemized deductions are any items found on IRS-determined list of allowable deductions; a few examples are
    • charitable contributions,
    • accumulated interest on investments or
    • career-based travel expenses.
  • Standard deduction, a dollar amount set by the government, which varies based on your filing status.
  • Opt for whichever will reduce your taxable income the most.

Calculate your taxes

Your tax is gross income minus your (exemptions plus deductions). Calculate your total tax payment by multiplying your taxable income figure by the tax rate that matches your income bracket.

  • If the calculated tax is less than what you have already paid through your paycheck, then IRS owes you the difference – you paid more for the year; time to get it back. Feeling well?
  • If the calculated tax is more than what you have already paid through your paycheck, then you owe IRS the difference – you paid less for the year; time to give it back. Feeling sick?

Tax credits

You may also be able to claim tax credits against your income, such as child credits or retirement savings.

Tax credits are a real bonus because unlike deductions, which merely reduce your taxable income, credits decrease your overall tax payment on a dollar-for-dollar basis.

income-tax-chart

Find your tax bracket

This is for your own sanity and for future reference. Your tax bracket depends on your gross income minus your deductions (plus exemptions), which in turn determines the tax percentage you will pay.

Check your return and again and again

Make sure to triple-check your calculations before you send in the forms. Verify that your Social Security Number (SSN) and full name are on every page.

Don’t forget to sign your tax return before filing

IRS sends back many returns to the tax return filer just because the taxpayer had not signed the return forms.

Taxes Sign Here

File your tax return

You can file your taxes either through the mail or online. Fill out the appropriate forms and send them off. IRS prefers you to file electronically, better known as e-file.

  • If you are claiming a refund, you will receive it faster by filing online.
  • Each person who e-files also receives confirmation that the IRS has begun to process the forms.
  • To e-file, your taxes need to have been completed through tax software or by a professional.
  • You can send your payment along with the return, or pay online.

Adjust your Withholding

Adjust your current W-4 form with your employer according to what IRS owes you or what you owe IRS. You can use IRS withholding calculators to adjust your W-4 form.

At the time of this writing, the calculator was not available. If it is still not available when you read this, please come back to check again.

Related Items from IRS

Do-It-Yourself Tax Software

You can do your own taxes by downloading and using tax software.

In a Nutshell
The old adage, with a different flavor, is “Death and taxes are unavoidable. Sooner or later you pay for both. The first with your life, the second with your life as well, perhaps sometimes. I don’t see the difference.”

Once you have successfully mastered the basics of taxes, you are set for life. Well! maybe not for life. Each year you can smartly and efficiently complete and file your tax return, and be secure in the knowledge that you truly pay special attention to your personal finances.

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