Personal Finance

Tax Returns 101


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In the United States, tax forms are reports filed with the Internal Revenue Service (IRS) and/or with a state or local tax collection agency that contain information that’s used to calculate income tax or other taxes. Tax returns are generally prepared using forms prescribed by the IRS or other applicable taxing authority. In this video, tax director Art Auerbach discusses tax return preparation, giving basic information on preparing an individual income tax return, Form 1040 and the basic schedules. He reminds viewers to remember that laws can change, so you need to consider that every time.

The vocabulary

The Internal Revenue Service has some language that you’ve probably heard before, but don’t necessarily understand. It includes: earned income (salaries, wages, tips and 2professional fees), unearned income (interest on your savings account, dividends and capital gains, as well as unemployment compensation), gross income (all income you received in the form of money, goods, property and services that is not exempt from taxes), exemptions (a predetermined amount of money you can deduct from your taxable income for basic living expenses), standard deduction (a set amount of money that the federal government gives you if you meet certain stipulations), itemized deductions  (there are six main categories of expenses that can be deducted: medical and dental, taxes, interest, charitable contributions, and casualty and theft losses), W-2 forms (these are the wage-income forms you receive from employers in order to prepare your taxes), and, finally, filing status (notes whether you are single, married, or head of household).

It doesn’t make for exciting reading, but these are terms you’ll need to know if you’re filling out your own tax returns, or even if someone else is filing them for you.

 

Who has to file?

3Depending on your gross income, you may or may not be required to file. For example, all single individuals under 65 with a minimum gross income of $8,950 are generally required to file. When you’re determining your income, be sure to include all taxable income you receive. The IRS has the power to require people to file federal tax returns. The standard U.S. individual tax return is Form 1040, although you’ll find several variations of this form (including the 1040EZ and the 1040A) and there are some supplemental forms as well. U.S. citizens and residents whose gross income exceeds a specified amount that’s adjusted every year for inflation have to file federal income-tax returns and also have to pay the taxes indicated on those forms.

 

When to file?

Taxes are due on or by April 15th every year. Many people now choose to file online, as it means that you can go down to the wire on filing. If you choose to mail it in, the date becomes more complicated. A return that is mailed to the IRS is timely filed if it is delivered on or before its due date, that is April 15. The “timely filing, timely mailing” rule requires that the return be postmarked within the prescribed filing period. So an individual return postmarked April 16 and received on April 20 is considered filed on April 20.