Filing Tax Returns

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Filing Tax Returns I. Definition of Terms You
should prepare your tax forms with the idea of
paying your fair share while taking advantage of
the tax breaks legally available to you.
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Before you can understand how to prepare tax
forms, you need a working knowledge of the tax
vocabulary. The terms described in the following
appear on income tax returns, in IRS instruction
booklets, and on forms and schedules you will use.
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• Filing Status
• Select the filing status that best fits you from
  among these five choices
• Single person (not married)
• Married person filing a joint return (even though
  only one spouse may have earned income)

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• Married person filing a separate return.
• Head of household (you may qualify as a head of
  household whether you are married or single if
  you meet certain conditions in providing a home
  for people dependent on you)

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• Qualifying widow(er) with a dependent child
• Mark your filing status on the front of the tax
  form.
• The tax instruction booklet contains a more
  detailed description of these classifications.

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After you file your first tax return, each year
thereafter you will automatically receive a tax
booklet containing the necessary forms in the
mail for use in preparing your tax returns.
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B. Exemptions When figuring taxes, an exemption
is an amount you may subtract from your income
for each person who depends on your income to
live. You would then not have to pay tax on this
amount.
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Therefore, each exemption reduces your total
tax. As a taxpayer you are automatically allowed
one exemption for yourself unless someone else
(such as a parent) claims you as a dependent on
his or her return.. If you are filing a joint
return, you can take an exemption for your
spouse.
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A dependent is a person who lives with you and
receives more than half his or her living
expenses from you. Each exemption you claim on
your income tax form excludes a certain amount of
your income from being taxes. This amount
increases each year according to the cost of
living.
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Dependents include children, a spouse, elderly
parents, or disabled relatives living with and
depending on the taxpayer. Dependency Tests. See
current handout.
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C. Gross Income Gross income is all the taxable
income you receive, including wages, tips,
salaries, interest, dividends, unemployment
compensation, alimony, workers compensation
benefits, and so forth.
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Scholarships and grants may be taxable for
amounts used for expenses other than tuition and
books. If you just take classes without pursuing
a degree, more of the scholarship or grant money
you receive will likely be taxable.
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• Also, employer-reimbursed tuition is in most
  cases taxable.
• Certain types of income are not taxable and are
  not reported as income. These include
• child support
• gifts
• inheritances
• life insurance benefits and
• veterans benefits

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• You are also taxed on other forms of income,
  including winnings from gambling, bartering
  income,
• pensions and annuities,
• social security benefits, income from
  self-employment, rental income
• royalties
• estate and trust income
• income on sale of property

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• Filing Tax Returns
• Definition of Terms
• A. Filing Status
• you must select the filing status that best
  fits you from among the five choices

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• You would then not have to pay tax on this amount
• As a taxpayer, you are automatically allowed one
  exemption for yourself unless someone else (such
  as a parent) claims you on his or her return.
• If you are filing a joint return, you can take
  an exemption for your spouse.

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• A dependent is a person who lives with you and
  who receives more than half his or her living
  expenses from you.
• Dependency Tests. See current handout.

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• Gross Income all the taxable income you
  receive, including
• Wages
• Tips
• Salaries
• Interest
• Dividends
• Unemployment compensation
• Alimony
• Workers compensation benefits

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• Scholarships and grants may be taxable for
  amounts used for expenses other than tuition and
  books.
• If you just take classes without pursuing a
  degree, more of the scholarship or grant money
  you receive will likely be taxable
• Employer-reimbursed tuition is in most cases
  taxable.

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• Certain types of income are not taxable and are
  not reported as income
• Child support
• Gifts
• Inheritances
• Life insurance benefits
• Veterans benefits

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• You are also taxed on
• Winnings from gambling
• Bartering income
• Pensions and annuities
• Rental income
• Royalties
• Estate and trust income
• Income on sale of property

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• Wages, Salaries, and Tips
• You must report your tips to your employer
  included with your wages on your Form W-2
• Interest Income
• All taxable interest from
• banks
• Savings and loans associations
• Credit unions
• Series HH savings bonds
• You will receive Form 1099-INT from the payers of
  such interest

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• Dividend Income
• Money
• Stock
• Other property that corporations pay to
  stockholders in return for their investment
• Will receive a Form 1099-DIV for each investment
  listing the dividend income

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• Unemployment Compensation
• Will receive a Form 1099-G
• Shows total received
• Must enter this amount as income on the tax
  return
• Social Security Benefits
• 85 of this money is taxable if your total
  income exceeds 25,000 for single taxpayers and
  32,000 for married taxpayers filing jointly.
• Will receive a Form SSA-1099, listing the total
  paid for the year

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• 6. Child Support money paid to a former
  spouse for support of dependent children
• Not taxable for the person receiving it, not is
  it deductible for the person paying it.
• 7. Alimony money paid to support a former
  spouse
• Is taxable for the person receiving it
• Deductible for the person paying it

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• D. Adjusted Gross Income
• The law allows you to subtract some types of
  spending from gross income
• You can adjust your income by subtracting such
  things as
• Contributions to IRAs
• After these adjustments are subtracted from gross
  income, the result is adjusted gross income.
• You will use your adjusted gross income as a
  basis for computing other deductions on your tax
  return.

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• Taxable Income
• Deductions- expenses the law allows you to
  subtract from your adjusted gross income to
  determine your taxable income
• To get the tax benefit from your deductions, you
  must list or itemize these allowable expenses on
  your tax return.
• To itemize expenses you must use Schedule A and
  Form 1040.

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• Common expenses you may deduct are
• medical and dental expenses beyond a specified
  amount
• State and local income taxes
• Property taxes
• Home mortgage interest
• Gifts to charity
• Losses from theft or property damage
• Moving expenses

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• If you do not have many deductions, your tax may
  be less if you take the standard deductiona
  stated amount that you may subtract from adjusted
  gross income instead of itemizing your
  deductions.

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• If your individual deductions do not add up to
  the standard deduction, then you can reduce your
  total tax by taking the standard deduction rather
  than itemizing.
• Once you have subtracted your standard deduction
  (or itemized deductions), you need to compute
  exemptions.

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• You may deduct a stated amount for each exemption
  to arrive at your taxable incomethe income on
  which you will pay tax.
• You can then determine your tax by looking up
  your taxable income on a tax table.
• See Taxable Income Formula Handout.

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• II. Preparing to File
• Gather income and expense records
• Make a rough draft of your tax return
• Study tax booklet that accompanies the printed
  forms
• Read instructions carefully to be sure you are
  taking advantage of every possible deduction and
  are reporting all taxable income
• Simple 1040EZ may require only 15 minutes to
  prepare

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• Long Form 1040 may require most of a day
• Who Must File?
• see handout
• In addition to the requirements given, people
  claimed as dependents on another persons tax
  return may also have to file a tax return
• You may also have to file if
• (1) you owe any special taxes, such as social
  security tax on tips

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• (2) you earned 400 or more from self-employment
• (3) you earned 100 or more from a church or
  church-controlled organization that is exempt
  from employer social security taxes
• If you did not earn enough to owe taxes but you
  had taxes withheld from your paychecks, you must
  file a return to reclaim the taxes withheld.
• If you do not file, you will not get a refund.

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• When to File?
• You must file no later than April 15 of the year
  after you earned income
• If April 15 falls on a weekend or holiday, your
  tax return is due on the next regular weekday.
• If you file late, you will have to pay penalties
  and interest charges.

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• Short Form or Long Form?
• All taxpayers must use one of three basic forms
  when filing their return.
• You must decide whether to fill out a short form
  (1040EZ or 1040A) or
• To itemize your deductions using the long form
  (1040).

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• In general, if your deductions add up to more
  than the standard deduction, your total tax will
  be lower if you use Form 1040 and itemize your
  deductions.
• Where to Begin?
• During the year, save all receipts and proofs of
  payment for your itemized deductions
• You will need these receipts to prove the
  accuracy of your tax return if you are audited.

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• Save all employee withholding records, such as
  your paycheck stubs.
• By January 31 you should receive your Form W-2
  from each of your employers
• Compare it with your records to check for
  accuracy.
• Any discrepancy between the Form W-2 and your
  records should be reported immediately to the
  employer and corrected.
• Social security tax withholding rates increase
  periodically

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• A current IRS tax preparation booklet will give
  you the current rates.
• It is wise to prepare your tax return earlyas
  soon as you receive your Form W-2 and any Forms
  1099, which reflect other income you received.
• Gather all other necessary information, including
  tax preparation booklets and last years tax
  return as a model for preparing this years
  return

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• If you owe additional taxes, mail your return and
  the amount due in sufficient time to have the
  enveloped postmarked by April 15
• If you have a refund coming, the sooner you file,
  the sooner you will receive it
• If you wait until April 1, your refund may be
  delayed for months
• You will not receive interest on refunds

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• Once you have gathered all your information,
  prepare both the short and the long form to
  determine whether you can save money by itemizing
  deductions
• Read all directions carefully and fill out all
  schedules completely
• If you did not have enough taxes withheld during
  the year to cover the tax, you may have to pay a
  penalty and will have to increase withholdings
  for the next year

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• If you receive a large refund, you should
  increase the number of allowances you claim for
  next year to reduce the amount withheld during
  the year.
• Ideally, you want the amount withheld to end up
  very close to the amount of your tax
• That way, you can have as much of your money as
  possible in the bank earning interest for you,
  rather than allowing the government free use of
  it during the year.

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• Even if you hire a professional tax preparer, you
  are responsible for supplying accurate and
  complete information
• Hiring a tax preparer will NOT guarantee that you
  are paying the correct amount.

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• If you discover an error in a tax return after it
  has been filed, you may file an amended return
  (Form 1040X) to claim a refund or credit, or to
  pay additional tax due.
• Save copies of the tax returns you file, together
  with all supporting evidence (receipts) for six
  years

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• Tax returns should be kept in a safe deposit box
  or in another safe place, together with copies of
  Forms W-2 and other supporting information.
• Filing Electronically
• For people who use Form 1040EZ or 1040A, the IRS
  allows electronic filing of tax returns and
  electronic payment of taxes due.
• You can file paperlessly by visiting www.irs.gov

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• This web site also allows you to pay
  electronically using a debit card or a credit
  card.
• If the government owes you a refund, the Web site
  promises quicker processing
• If you file electronically, be sure to print a
  copy of the tax return for your records.
• III. Preparing Your Income Tax Return
• You must complete the tax return in ink or typed
  with no errors or omissions.

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• The booklets provided by the IRS have
  line-by-line instructions that explain each
  section and type of income or deduction.
• Tax Preparation Software
• Most professional tax preparers use a tax
  preparation computer program.
• You can use tax preparation software to do your
  own taxes if you like

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• Good software provides all the necessary forms
  and leads you through the process of filling out
  the forms.
• Most tax software also provides tips and
  additional information to help you identify all
  the deductions you are allowed
• Tax preparation software is available for all
  types of computers and costs from about 20 to 50