The Ultimate Guide to Successfully Filing Your Taxes

As an employee, you’re no stranger to the portion of your paycheck that disappears, earmarked as taxes by your employer and sent directly to the state government. Yet, the deductions from your salary are merely the first step of the taxing process. Curious? Let’s explore more.

The Concept of Tax Return and its Importance

A tax return, essentially a document that wraps up your financial year, must be filed by every individual. By filling it, you ascertain if you’re due for a refund or have additional taxes to pay. Tax returns are typically prepared near April 15th each year.

Various factors can influence your annual tax calculation. For instance, upon commencing a job, your employer will have you complete a W-4 form, which dictates the proportion of your salary set aside for taxes. It’s wise to update this form during significant life events, like marriage or the arrival of a child, which can shift your overall tax bracket.

Navigating the Tax Return Filing Procedure

You can file your returns through several avenues, both free and paid. For the free method, you’ll need to:

Fill in Form 1040 manually, following IRS-provided instructions. Once completed, include any outstanding tax payments and mail it directly to the IRS. The necessary forms are downloadable online.

If you’re willing to pay for convenience, you can:

Leverage local tax services or websites. You’ll answer a series of questions, and the program uses your responses to auto-fill Form 1040 and file it with the IRS.

Hire professional tax help, including accountants, who can pinpoint areas for maximizing your tax savings and handle the filing process on your behalf.

Determining Your Taxes

The government employs tax brackets (thresholds triggering percentage changes) to calculate your tax rate, based on your taxable income. The higher your income, the higher your tax rate will be.

For those with stable employment, your employer provides a W-2 form annually. This form discloses everything about your taxes, including the total tax paid for the year and the amount withheld from your paychecks. This information feeds into your tax return, helping determine whether you’re due for a refund.

Claiming Tax Deductions

Tax deductions allow you to decrease your taxable income. Rather than subtracting from your total tax bill, deductions lower your taxable income, potentially moving you into a lower tax bracket.

However, not every transaction is deductible. Some eligible expenses include charitable donations.

There are two deduction paths – Standard and Itemized.

Standard deductions are predetermined amounts established by the IRS to aid individuals with living expenses. Depending on your expenditure level, standard deductions could provide more tax relief than itemized ones. Here are the 2021 values for qualifying individuals:

Head of household (with one or more dependents) – $18,800

Married, filing separately – $12,550

Married, filing jointly – $25,100

Itemized deductions require meticulous tracking and recording of all yearly expenses, tallying up the deductible amounts, and entering them into your tax return. You’ll need to maintain records of every expense and provide proof if asked.

The Final Step

Once the IRS has processed and collected all relevant information, you can check your tax balance to see if you owe money or are due for a refund.

For payment, the IRS accepts online transactions (both credit and debit cards) or you can mail your payment to your state department of revenue.

For refunds, the IRS will either mail a check or deposit the amount directly into your bank account. You’re free to choose the method of receipt and can even split the refund between two separate accounts.