Filing an income tax return can be complex, from computing and calculating your tax liabilities to requesting refunds from overpayment. This can be a stressful and overwhelming process, considering how critical it is that you do it right.
With that in mind, this article outlines a few insights to help you when filing an income tax return.
1) Prepare All Necessary Documents
Essentially, there are a lot of documents needed when filing an income tax return. To simplify the process, here’s a checklist of the common documents, records, and information you’d need to prepare beforehand and have with you:
- Social Security Number
The IRS uses your SSN as a reference when validating the income you indicated on the tax form. And generally, what you need is the number, so if you lose your social security card, you can still file your taxes. But the Social Security Administration (SSA) recommends applying for a replacement if your card is lost or stolen.
- Income Or Earning Statements
When you file taxes, you’ll need to provide your employer with a W-2 form. If you’ve been an independent contractor or freelancer, you’ll need to provide an IRS Form 1099.
These income statements are important because they have information about your earnings and possible deductions that can be used to help calculate your taxes. Your employer may also issue other forms for health care coverage or retirement contributions.
If you’re self-employed, all the information needed on your tax return will come directly from your records (or receipts) related to the business. For example, sales receipts from customers or vendors.
Aside from income statements, you can also prepare Form 1098 should you’ve paid any mortgage interests. On the other hand, prepare Form W-2G for gambling winnings.
- A Copy Of Last Year’s Return
While this may not be a strict requirement, ideally, it’s recommended to keep a copy of your tax returns for the past years as it can help you better prepare for future income tax returns. This is especially since you can have a guide or a refresher of what you declared and filed in the previous years.
2) Check If You Need To File A State Tax Return
If you are a resident of the state where you work, you will need to file a resident state income tax return there. But if you live in one state but work in another, your home state may require you to file an income tax return with them as well.
The same goes for non-residents: if they live in one place and work in another, they may be required to pay taxes on their earnings from wherever they earn them.
3) Choose A Filing Status
Choosing your filing status is critical, as it can help determine the number of things about your tax return. For instance, it will determine your filing requirements, the standard deductions you’re eligible for, tax rates, and whether you’re eligible for tax credits and deductions.
There are several filing statuses from which to choose:
- Single: You can pick this if you are unmarried and don’t have any qualifying dependents.
- Head Of Household: You can choose this if you’re unmarried, but you take care of the costs to provide a house for at least one qualifying dependent.
- Married Filing Jointly: This one has the most benefits for married couples in terms of increased standard deductions, among other benefits.
- Married Filing Separately: This works best if you and your spouse are high-income earners with differing tax liabilities. Filing separately can help protect one partner from the other’s tax liabilities.
- Qualifying Widower: This can be claimed after two years of your spouse’s passing if you have a qualifying dependent.
4) Collect Your Receipts For Deductions And Credits
Your income tax return will likely benefit from a few deductions and credits, but you’ll need to have the documentation to back it up. Among the types of receipts, you can keep include those from charitable donations, medical or other business expenses.
With that in mind, make sure your receipts are in order. If possible, sort them into categories like “home improvements” or “business expenses” so that they’re easy to find when preparing your return, and more so, you can ensure they’re not misplaced or thrown out.
Another tip to note is to keep copies of all of them. You never know when an old receipt may come in handy down the road; having multiple copies can make things easier if you ever need to amend previous years’ returns.
5) Determine Your Filing Method
Essentially, you have three options when filing your income tax return. It can be done online, by mail, or by hiring a tax professional. Depending on your preference and needs, you can choose either of these filing method options.
If you choose to file your taxes online, there are no costs associated with doing so. If you choose to file your taxes by mail, there is also no cost associated with doing so, but it does take longer for the IRS to process your return and issue your refund or any tax due.
Lastly, if you choose to hire a professional—which can be beneficial if this is the first year that you’ve had income or assets worth reporting—the service fee will be included in their fee structure.
What If You Need To Amend Your Tax Return?
Suppose you made a mistake while filing your tax return and only realized it after you’d filed. In that case, no need to panic just yet, as it can happen to anyone.
Some common errors include math miscalculations, wrong or forgotten deductions, and reporting only part of your income, among others.
To amend these errors on your tax return, consider doing the following steps:
- Double-check your tax return and make sure you really made a mistake.
- Find out if the IRS has noticed this error already. It’s possible that the IRS might have corrected your error based on the information they already have (considering they keep track of 1099-C and W-2 data, and may occasionally use it to correct your data).
- After checking for these and you’re sure you need to amend, then you’ll need to file for Form 1040-X, which is the amendment tax return form. You can use this form to add or update information on your tax return documents.
- If there are any additional taxes that come with your amendment( e.g. in the case where you find you had previously understated your income), then it’s advisable to pay them as quickly as you can before interests accrue.
Wrapping Up
Filing an income tax return can be a stressful and daunting task, as you’ll be navigating various requirements and technical aspects.
Hopefully, the insights outlined in this article have made it easier for you to figure out how to go after your taxes with convenience.
