Preparing and Filing Your Tax Returns
Paying taxes is an important responsibility that every individual should take seriously. Tax returns comprise a significant part of the expenses for most people. Therefore it’s important to get your tax preparation and filing process done with utmost care to avoid unnecessary financial and legal complications.
In this article, we will discuss everything you should know about preparing and filing your tax returns for the next tax season.
What are Tax Returns?
Tax returns are official documents filed by taxpayers to report their income, expenses, and other pertinent information to the government for the purpose of calculating and paying the right amount of taxes. Tax returns are typically filed annually, before a specific deadline. The deadline for filing taxes is generally April 15th of every year.
Filing taxes is essential as it helps the government determine the contribution of individual citizens to the public welfare fund. It also provides the taxpayers with the opportunity to claim various deductions and credits, legally reducing the amount of taxes owed.
Types of taxes
Different types of taxes exist, which we will outline below:
1. Income Tax: This is a tax that the government imposes on the income earned by an individual or entity. Taxpayers are required to calculate their taxable income and pay the appropriate tax to the government.
2. Self-Employment Tax: This tax is specifically for self-employed individuals and independent contractors who work for themselves and are not eligible for employment taxes.
3. Sales Tax: This tax is collected on the sale of goods and services. The tax amount depends on the state and the type of good or service being sold.
4. Property Tax: This tax is levied on the value of a property, including land, buildings, and any improvements made on the property.
Steps to File Tax Returns
Filing tax returns can be a challenging task, especially for those who are doing it for the first time. Several steps are involved in preparing and filing your tax returns. Some of the essential steps are:
1. Gather all necessary documents
Before starting the process of filing your tax returns, you should first gather all the essential documents. These documents include:
• W-2 forms for each job held during the previous tax year.
• Any 1099 forms received for work done as an independent contractor or self-employed.
• Other sources of income like rental income.
• Evidence of any deductions or credits that you are claiming.
2. Choose a tax preparation method
After gathering the necessary documents, the next step is to choose a tax preparation method. There are two main ways to prepare your tax returns:
• Do it yourself: Many people prefer to take on the task of preparing their tax returns by themselves, either by using tax preparation software or by filling out the forms by hand.
• Hire a professional: Alternatively, you can hire a tax professional to help you prepare and file your tax returns.
3. Prepare your tax returns
The next step is to prepare your tax returns. This involves calculating your taxable income, determining your tax rate, and claiming any deductions or credits that you are eligible for.
Once you have completed the calculations, you will determine whether you owe the government any taxes or if you are eligible for a refund.
4. File your tax returns
Once the preparation of your tax returns is complete, the next step is to file them. Several options are available for filing your tax returns:
• Electronic filing: Most people choose to file their tax returns electronically as it is faster and more convenient.
• Paper filing: Alternatively, you can file your tax returns by mail.
5. Pay your taxes or receive a refund
The final step after filing your tax returns is paying any taxes owed to the government or receiving a refund. Taxpayers can choose to receive their refund through either Direct Deposit or a paper check.
Tax Filing Tips
Filing your taxes can be a daunting task, but with the right approach, it can become easy and stress-free. Here are some tips to help ease the tax-filing process:
1. Keep track of your documents
Keeping track of your documents throughout the year can significantly simplify the tax filing process. Place all your W-2s, 1099 forms, and other essential documents in a folder, so you are ready to go when tax season rolls around.
2. Know important tax dates
It’s crucial to know all the important tax dates, including the date when taxes are due. This knowledge will give you enough time to prepare for tax season, eliminating the possibility of last-minute panic.
3. Be familiar with tax changes
Tax laws occasionally change, so it’s essential to stay up-to-date with any new laws so that you can optimize your tax returns. You can find detailed information on the Internal Revenue Service (IRS) website.
4. Claim all eligible deductions
Claiming all the deductions you are entitled to can reduce the amount of tax you owe and increase your refund. Claiming all your deductions also avoids an audit from the IRS.
5. Consider hiring a tax professional
If the tax filing process seems too challenging, consider hiring a tax professional to help you prepare and file your tax returns. A good tax professional can help you maximize your tax returns and avoid legal complications.
Conclusion
Preparing and filing your tax returns is not something that should be taken lightly. Taxpayers should be familiar with all the essential steps required to file their tax returns accurately. Keeping track of important tax dates, knowing all the tax changes, claiming all eligible deductions, and hiring professionals to assist are all best practices that taxpayers should implement when filing their tax returns.
A significant part of the overall taxes paid is represented by tax returns. Therefore, proper tax preparation and filing can help save costs, reduce the risk of legal consequences, and provide you with peace of mind.
Tax planning is a procedure taken by the majority of taxpayers to help arrange your financial affairs to ultimately minimize your tax payments. There are three basic procedures to reduce your taxes. Although the procedures are somewhat simple there are multiple variations of each process. Tax planning can be accomplished through reducing your income, taking advantage of tax credits, or through the increase of your deductions.
A fundamental step for income tax preparation is to reduce one’s income. The adjusted gross income is a variable that determines your taxes. The AGI is your income from any source minus adjustments to the income. The higher the AGI the more taxes you will pay, and conversely the less money you make the lower the taxes. The main way to reduce your taxes therefore, is to decrease your taxable income.
The primary way to reduce your income is to increase your taxable deductions. This form of income tax preparation enables an individual to counteract their income through various procedures or assets that allow the taxpayer to decrease their income. For instance, charitable contributions or capital losses can be used in tax planning to decrease one’s taxable income. The assets or functions are used to offset a portion of the individual’s income.
Similar to deductions, a taxpayer can also take advantage of tax credits. Tax credits are typically offered by a government agency to encourage investment or spark consumption. Regardless of the tax planning vehicle, all forms of income tax preparation are used to streamline the collection process and maximize an individuals refund.
