Tax Returns 101

Tax Day is coming. 

Filing your own tax returns can be daunting. What form should you file? (Wait, there’s more than one form???) When can you file? How will you possibly get all this done by April 15th???

Take a deep breath. Focus. Here’s some helpful information to guide you through your tax return, whether you’re a first-time filer or just need a refresher before sending your forms off on their merry way. Don’t worry, file happy with the guide below!

[divider] [/divider]Do you need to file?

Whether you need to file a federal tax return depends on your income, age, and filing status (if you’re single, married, have dependents, or can be claimed as a dependent). For instance, if you’re single, under 65, and made over $10,000, you will need to file. These qualifiers can get confusing, so here’s a simple YES/NO quiz on the IRS site to help you figure out if you need to file. On the bottom of the page, just click YES or NO to answer whether the statements apply to you. At the end, the site will tell you if you’re required to file.

Even if you’re not required to file, you may want to. It’s good to have a record of your taxes, and you cannot collect any income tax returns if you don’t file.

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What you’ll need:

–Personal information and identification, including your Social Security Number. If you don’t know your SSN#, make sure you have it on hand. You’ll need this info to file your tax return.

-Your wages forms (W-2, W-2G, etc). Everywhere you worked in the last tax year should send your W-2’s out by January  31st. If you haven’t received a W-2, contact your employer. There are other forms that count as “wages.” For example, the W-2G form states gambling earnings.

-Bank interest statements, brokerage statements, etc. If your savings account collects interest, you must declare it (although if you’re only making a few cents a year, it probably won’t matter). If you have investments or have traded stock, wait for a statement from your brokerage firm, which should have been mailed by mid-February.

-A whole hot mess of receipts, including receipts for work-related expenses, for charitable donations, or for child care.

-A copy of last year’s return, if you filed. And if you’ve never filed before, don’t sweat it. That’s what this guide is for!

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Ways to file:

-Hire an accountant or tax preparer. This is your most worry-free option, but it can often be expensive. Accountants who prepare taxes are well-acquainted with all the rules and regulations of what you can and cannot declare (I mean, it’s their JOB). Sometimes they can get you credits you never would have thought to declare yourself! If you or your family don’t have a trusted accountant, there are great ones at offices like H&R Block, Jackson Hewitt, or your local firm; around tax season, some of these places don’t even require an appointment!

–Can’t afford a tax preparer? If you make under $52,000 you may qualify for free tax preparation through IRS Volunteer Income Tax Assistance (VITA). These IRS-certified volunteers will meet with you at a community center, library, or other location and help with your taxes. Remember to bring all the materials listed above! To find VITA near you, call (800) 906-9887.

-E-file using a tax prep website. This is my preferred method. You can file for free through the IRS site FreeFile, or you can file through an accounting firm and pay a little money. If you’re a first-time filer, you may want to shell out the $30ish to get onto TurboTax or H&R Block online; websites like these offer various levels of help and guidance with your tax return in case you get confused. Most of these sites will also parse the income questions from a typical tax form into easier-to-understand language.

-File a paper copy yourself. This is going to be the cheapest, but also the most confusing, option. All the numbered boxes can be a real headache, but at least paper filing is 100% free! You can get a paper copy at a tax center, an IRS office, and sometimes at the US post office. If you want a second pair of eyes on your returns, you can always take your paper copy to an accountant to look over for a minimal fee. They’ll usually mail it for you, too. Because the IRS keeps electronic records and has to retype every paper return that you file, it’s going to be faster, more convenient, and less likely to get bungled if you file online instead.

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What form should you file?

-Form 1040EZ is, aptly named, for the easiest tax situations. You can file 1040EZ if you’re single or married filing jointly, and if your income is less than $100,000 and interest income less than $1,500. With 1040EZ you cannot claim adjustments to income, such as student loan interest deductions or retirement account deductions. Actually, you can’t claim any credits or deductions except EIC (a credit for moderate income working people). This is the most straightforward form available.

-Form 1040A is known as “the short form.” Like 1040EZ, you must be single or married filing jointly, with income less than $100,000. You can claim some common credits, such as Education credits, Child Tax credits, and retirement account credits (if you have an IRA for example). You cannot itemize deductions on a 1040A, which means you can’t declare deductions such as charitable donations. If you are self-employed or have extensive investments, you cannot file form 1040A.

-Form 1040 is known as “the long form.” You can claim any and all available credits or deductions. You can have income from virtually anything. If you don’t qualify for 1040EZ or 1040A, you will be filing a 1040. It’s longer, because it’s more thorough.

-Form 1040NR is only for US nonresident aliens to file income tax. For tax purposes, you are considered a US resident if you have a green card, or if you have “substantial presence” in the US. “Substantial presence” is determined by whether you have resided in the US for more than 183 days in the last 2 years, or 31 days this tax year.

-Form 1040NR-EZ is the 1040NR for nonresident aliens without dependents.

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Helpful tax lingo:

-Dependency and filing as a dependent. If your parents provide more than half of your financial support, you may be considered your parents’ dependent. Check with them before filing so that you know whether to file as a dependent or head of your household. Dependents don’t get the same tax breaks, so it may be tempting to file as head even if you receive a lot of financial support. Don’t. If you file this incorrectly, you may have to pay back taxes in the future. If you have children of your own or a qualifying relative reliant on your income, you can claim them as dependents on your taxes.

-Gross income vs. earned income vs. adjusted income. How many kinds of income can you have, right? Earned income is the money you actually earned through your wages, tips, or from self-employment. It’s basically the sum of your W-2 forms. Your gross income is your earned income added to unearned income, like the interest from a savings account or investments. After you apply adjustments (see below), you’ll have your adjusted gross income. It’s basically how much you really made after expenses like contributing to a retirement account or paying your student loans.

-Adjustments: Credits and deductions. Credits reduce how much you have to pay in taxes if you meet their qualifications. Some common credits are for childcare, as a stimulus for low-income taxpayers, for owning a farm, or for costs associated with higher education. Remember that you can’t claim any of these credits if you’re filing the 1040EZ, and only the most common credits are available on a 1040A.

Deductions, like credits, affect how much you owe in taxes. While credits are basically given for fulfilling certain qualifications, deductions are amounts you have already paid our of your income. For example: amounts you paid into an IRA or health savings account, or how much you paid off your student loans. Itemized deductions are the deductions you make for charitable donations, substantial out-of-pocket expenses for medical or dental, and other miscellany. Itemized deductions can only be filed using the 1040 long form.

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After you file:

-Unless you have filed an extension, tax forms are due April 15th. You may qualify for a tax extension if you will be out of the country during the filing period, or for other extenuating circumstances. Otherwise, it’s April 15th.

-Keep a copy of your tax forms. This will help you complete your taxes next year! Also, if you need to amend your tax filing in the future, you will definitely need this record. Keep copies of taxes for as long as you can amend them (depending on what you’re amending this can be up to 6 years). If you think this applies to you, read more here.

-When will you get your return? You only get a tax return if you’ve overpaid your taxes. The term “filing a tax return” is sometimes a misnomer. If you’ve underpaid, you’ll need to pay the government what you owe. That’s the price of things like fire engines, public parks, and federal student aid. If you filed with a tax agent or e-filed online, you’ll know how much to expect. Most tax refunds are issued within 21 days.

Any questions not covered here? Leave a comment below.

Featured images courtesy of HeedingtheMuses and the US Fish and Wildlife Service HQ. Images have been edited.