Filing Your Taxes Successfully: The Ultimate Guide
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What is a tax return and why do you have to file it?
A tax return is documentation that every individual has to file at the end of a full year. By doing so, you can determine if you are owed or need to pay any extra tax payments. These reports are usually done close to the 15th of April every year.
There are many different ways that your tax score can be affected every year and you need to do this check to make sure that you get the best returns every year. For e.g., Every employer will make you sign a W-4 form when you start a job. This form is used to identify how much of your pay should be used for taxes. The recommendation is that you update this form every time you face a big change in your life such as a newborn or marriage, as these can affect your overall tax percentage.
The tax return filing process
There are multiple ways, both free and paid, that you can file these returns. The free method is:
- Manually fill in the correct form (Form 1040) using the exact instructions that the IRS provides. Once done, you will need to also include any tax payments that you have to make and then mail the IRS directly. The tax forms can be downloaded online.
These are your paid but simpler options:
- You can use a tax service or website that is in your area to do the process for you. You will have to answer some questions that they ask you. These answers will then be used by the program to automatically fill in the Form 1040 and then filed directly to the IRS.
- There are professionals around that you can hire to help with your taxes. Accountants included will help you to identify where you can maximize your savings with taxes and then do the rest of the process for you.
Calculating your taxes
To determine your tax value, the government uses tax brackets (which are amounts at which the percentage changes) to find your tax rate. The taxes are based on your taxable income. The higher it is, the higher your percentage will be.
When you have a steady, permanent job, your employer will hand you a W-2 form at the end of the year. This form will tell you everything about your taxes including the total value of how much tax you have paid for the year plus how much the company held back from your payroll just for taxes.
This is then sent to be entered into your tax return file, which will help in determining whether you are owed a refund or not.
Claiming tax deductions
A tax deduction is when you make a claim to reduce some values from your taxable income. You will not be reducing these figures from your total bill but rather from your taxable income, which when reduced by a certain amount, will qualify you for a lower tax bracket.
Every transaction you make cannot be deducted from this. There are limitations involved in every type of payment you make. An example of what can be deducted is a payment to charity.
There are two ways to get tax deductions – Standard deductions or Itemized deductions.
Standard deductions are fixed tax values that are set up by the IRS to help people to meet living expenses. Depending on your spending level, this could give you more of a tax break than itemized deductions. Here are the values for 2021 for those who qualify:
Head of household (has one or more dependents) – $18,800
Married but filing separately – $12,550
Married and filing together – $25,100
Itemized deductions are a painstaking process of noting down all your expenses for a year, adding all the values that are allowed to be deducted, and then entering them into your tax return file. You have to keep track of every expense and show proof if requested.
The final step
Once all the necessary information has been filed and collected by the IRS, you can check your tax balance to see if you need a refund or you owe money.
For making a payment, you can do so online (they accept both debit and credit cards), or send the money to your state department of revenue.
If you have a refund imminent, the IRS will mail you a check or make a bank deposit straight to your account. You are free to choose how you want to receive it and can even split the refund between two separate accounts.
Steps to FIle your Taxes Summarized
Due to the lengthy process, filing your taxes can be overwhelming, but there’s no way to escape it. Here is a quick summary of the steps to follow while filing your taxes.
- Collect all your Documents(W-2 Form, 1099 and 1099 INT Forms)
- Include your Filing Status (Applies mainly if you are married)
- Choose the way to file your Taxes(You can choose to e-file for faster processing)
- Decide whether you’ll go for Standard Deduction or not. (You can itemize your return too)
- Make tax payments if you are in debt. (Apply for a payment plan)
- File your taxes by April 15 of Every Year