Many dread filing taxes, which is a yearly seasonal affair, especially when it is the first time. Given the fear of taking expensive, wrong action, managing complex questionnaires, and not knowing where to begin, it is hardly surprising that many delay it until the very last minute. But the process doesn’t have to be overwhelming. If guided appropriately and prepared well, tax filing can be a very simple process you can easily handle. In this comprehensive step-by-step guide, we’ll walk you through everything you need to know about how to file taxes.
Whether you are registering for tax for the first time or returning to tax basics, this guide will set you on the right path toward smooth, timely filing and carefully maximizing your return.
How to File Your Taxes: A Step-by-Step Guide
Tax filing involves several steps, and although it can appear daunting at first, simply breaking it down into manageable steps makes the process much easier. Whether you are self-employed, a student, or a regular employee, this lesson will guide you through the most important stages to guarantee you file accurately and on time.
Determine If You Need to File Taxes
Determining if a tax return is necessary is the first step in the tax filing process. Although it’s widely believed that everyone must file a tax return, this isn’t always the case. Income, filing status, age, and whether or not you are claimed as a dependent are some of the variables that affect your filing obligation. Let’s examine the specifics.
Income: The Key Factor
If your income exceeds a specific threshold, you are required to file a tax return. However, a number of variables affect the threshold, such as:
Filing Status: Your income threshold varies depending on whether you are single, married filing jointly, married filing separately, or the head of household.
Age: The threshold also varies depending on your age. For example, if you’re under 65, the income threshold for a single filer is typically lower than if you’re over 65.
Dependents: Because you are a dependent on someone else’s tax return (e.g., a parent’s return), there are filing requirements that are different from someone who is not a dependent.
Common Filing Situations
Following are some of the most frequent circumstances when one has no need to file, and when one has.
If you are self-employed: If you earn over $400 from self-employment, you are required to file a tax return.
If you are a student: Students who earn income above the basic threshold are required to file. The thing is, if your income falls below the line, you may not be required to file, but it may be in your best interest to do so to take advantage of any tax credits.
If you earn under the threshold: When your income is below the taxable threshold, and you do not claim to be self-employed, you are unlikely to need to file a tax return. However, you may still be eligible for certain tax benefits, such as the Earned Income Tax Credit (EITC) or the Child Tax Credit, which could result in a refund.
Even if you are not required to file taxes, it’s often beneficial to do so. You may be entitled to tax credits or deductions that might lead to a refund, although, in fact, you may not have owed any taxes at all. Additionally, filing a tax return can help protect you in case the IRS needs to verify your income for other purposes, such as applying for loans or government assistance.
Who Doesn’t Need to File Taxes?
In some cases, you may not need to file taxes. If your earnings are below a certain amount and you are not self-employed, you generally do not need to file. However, there are exceptions to this rule. If you are eligible for refundable credits, such as Child Tax Credit or Earned Income Tax Credit (EITC), you might consider filing to receive a refund even if your income is below the filing requirements.
Self-Employed?
As a self-employed person, there are also tax-related nuances that need to be taken into account. The IRS requires self-employed individuals to report their income if it exceeds $400 in a given year. This can be from freelance work, small business ventures, or gig economy jobs. Self-employed individuals also need to file Schedule C (Profit or Loss from Business) and pay self-employment tax, which includes Social Security and Medicare taxes.
TIP: Self-employed individuals can also qualify for deductions based on business costs, e.g., home office deductions, transportation, use of business equipment, etc. Keeping detailed records of your income and expenses is crucial for maximizing your deductions.
Take Note of Tax Deadlines and Dates
The next is to learn about tax filing deadlines. The IRS has due dates for filing taxes and failing to meet those due dates will lead to penalties and interest.
Key Tax Filing Dates
The tax return filing deadline is 15th April for a general taxpayer. If 15th April is a weekend or holiday, the limit of time is usually moved to the following business day. If you can’t meet this deadline, you are entitled to file for an extension (i.e.
TIP: Just remember that in case you need to apply for an extension you are only given more time to file your tax return but not extra time to settle any taxes you owe. Taxes remain a liability and are subject to interest and penalties as of the original due date.
When to File Taxes
Tax season, in general, starts in late January, when the IRS opens up tax return filing. People tend to delay filing until the last minute, but early filing can expedite the process, especially if one is likely to receive a refund. Another, furthermore, early submission allows you to address any problems or errors before the deadline.
TIP: Filing early also minimizes the risk of identity theft. Criminals will also try to file fraudulent tax returns as soon as possible in the tax year, and if you file at the beginning of the tax year, you will have a guarantee that no one else has already filed using your name.
What Happens If You Miss the Tax Deadline?
If you miss the tax filing deadline without filing an extension, there is a potential failure-to-file penalty. The penalty can be high—generally 5% of what has not been paid in taxes for each month and the collection does not exceed 25%. Furthermore, if you are in tax owing and do not pay by the due date, the IRS levies failure-to-pay penalty and interest on the outstanding amount.
Understand How Your Taxes Are Determined
If you have determined whether you need to file and when to file your taxes, it is now time to grasp how tax liability is calculated and what inputs into the calculation influence your tax return.
The Progressive Tax System
The US tax base follows a progressive tax model. This means that the more you earn, the higher the percentage of your income you pay in taxes. Your salary is taxed on different slabs, with different slabs carrying different rates of taxation. The higher the income, the more tax burden will be in higher income tax brackets.
Here’s an example:
$0 to $9,875 is taxed at 10%.
$9,876 to $40,125 is taxed at 12%.
Which is subject to 22% taxation, for an amount of $40,126 up to $85,525, and so on.
How Deductions and Credits Affect Your Taxes
Deductions reduce your total taxable income and, therefore, may lead to a reduction in your tax burden. For example, if your income is $50,000, and you have $5,000 in deductions, you would only be taxed on $45,000. Common deductions include:
Mortgage Interest: If you are a homeowner, you may be able to claim the interest on your mortgage as a deduction.
State and Local Taxes: You can deduct the amount of state and local taxes you paid, subject to limits.
Charitable Contributions: Donations to qualified charities may be deductible.
Student Loan Interest: There is a deduction of up to $2,500 for student loan interest.
Tax Credits: More Beneficial Than Deductions
Tax credits, unlike deductions, directly reduce the amount of tax you owe. As an example, if eligible for a US tax credit of $1,000, you will owe $1,000 less as taxes with no significance to your income level. Certain credits are refundable; that is, when the government’s tax liability is zero, the government may refund the balance due.
Popular tax credits include: Popular tax credits include:
Child Tax Credit: This credit can be up to $2,000 per child under 17 years of age.
Earned Income Tax Credit (EITC): This is intended to serve low- and middle-income workers, in a particular way, as those with children.
American Opportunity Credit: This provides a credit for qualified education expenses.
TIP: Tax credits can on many occasions produce a bigger refund than deductions, so be sure to make the most of any credits which you are entitled to.
Decide How to File Your Taxes
There are various ways to file your taxes. You can do it yourself using tax software, hire a tax professional, or file using paper forms.
Using Tax Software
Filing taxes in a few minutes is a reality of online tax software. There is step-by-step guidance, and thus, the task becomes much easier with programs such as TurboTax, H&R Block, and TaxSlayer. On these platforms, the required forms are automatically completed based on the data that you enter so that the possibility of errors is minimized.
Benefits of Tax Software: Benefits of Tax Software:
Automatic Form Filling: After you input your income and deduction, the software fills in the forms automatically.
Deductions and Credits Guidance: Most programs guide you through the process of finding deductions and credits that you qualify for.
Audit Support: There are programs of software available that have an audit help function and will assist you in preparing for an audit if you are audited.
Hiring a Tax Professional or CPA
For people with complex tax returns, it is also a reasonable solution to have a tax preparer or Certified Public Accountant (CPA). This is especially the case for business owners, persons with investment income, or any other person that is dealing with sophisticated tax positions. A professional can help you maximize deductions, avoid mistakes, and ensure that your taxes are filed properly. Fiscal Profits provides tax filing services in New York, and you can hire our professionals to file your taxes properly.
Benefits of Hiring a Tax Professional: Benefits of Hiring a Tax Professional:
Expertise: Professionals are experts in tax law and can guarantee the correctness of your return.
Personalized Advice: They may make individual recommendations concerning tax planning for example in retirement planning or how to minimize taxable income.
Filing Paper Returns
Filing a paper tax return is an option that is less attractive, however, etc. It includes completing IRS forms manually and filing them with the IRS. This method is slower and more prone to errors, which is why it’s not recommended for most taxpayers.
Gather Tax Filing Information
Get all the needed paperwork before you start to fill in your taxes. Here’s what you might need:
W-2 Forms: If you have been hired, your employer is required to issue you a W-2 form, which states your earnings and the taxes that were taken from you.
1099 Forms: If you freelanced, earned interest or dividends on investments, you should have received a 1099 form.
Receipts and Documentation for Deductions: Collect receipts for all deductible items, such as charitable contributions, medical bills, and business-related expenses.
Social Security Numbers: You’ll need the SSN for yourself, your spouse (if applicable), and any dependents.
File and Settle Up with the IRS
Now that you’ve collected all your paperwork and filled out all forms, it’s time to file and close out with the Internal Revenue Service.
If You Owe Taxes:
There are several payment options when owing taxes. You can pay online, by check, or by credit/debit card. The IRS also offers installment agreements if you’re unable to pay the full amount at once.
If You’re Getting a Refund:
If you’re expecting a refund, filing online is the most efficient method to get it. The IRS normally processes e-filed returns faster than paper returns, and you can have your refund placed into your checking account via direct deposit.
Final Thoughts
Filing taxes doesn’t have to be a stressful experience. By following this detailed guide on how to file taxes, you can navigate the process. If you find this blog helpful, don’t forget to share it with your friends.
