How to file taxes on your own | News
The dread that surrounds the issue of taxes can be attributed
primarily to taxpayers' fear of the unknown. A surprising number remain
confused about basic tax knowledge, preferring instead to transfer full
ownership of their returns to a seasoned professional or computer
TUTORIAL: Personal Income Tax Guide
tax season had you tied up in knots this year, you're probably glad
it's over -- but you can prevent the same thing from occurring again
next April. Learn to master these fundamentals of filing your tax return
and you'll reduce your stress come tax season.
Back to Basics
Citizens are required to report and pay taxes on all income they have earned over the year. Gifts, such as inheritances or scholarships, are not considered part of this category. The U.S. tax system is progressive, which means the more income you earn, the more taxes you pay. Your total earned income is known as gross income.
Throughout the year, your employer deducts a set amount from each paycheck for tax payments, a process known as withholding. When
you file a tax claim, you must calculate how much you have already paid
through these installments. If you've paid more than you owe, you're
entitled to a tax refund. If you haven't paid enough, you owe the balance to the government by the deadline, which is usually April 15 of each year.
benefits reduce your overall payment. If you put money into an IRA or
pension fund, for example, the balance is tax-sheltered. (For related
reading, see Tax-Saving Advice For IRA Holders.)
Never Too Early for Next Year
It's never too early to start thinking about next year's claim. To
start, implement a filing system. It's as easy as grabbing a file folder
and labeling the tax year. Every time you receive receipts, medical
bills or other relevant paperwork, throw it in the file. Come next
April, you'll be grateful that your papers are all in one place. Also,
invest extra money in a tax-sheltered location, such as a retirement
savings plan. (For related reading, see Money Saving Year-End Tax Tips.)
you have significantly overpaid or underpaid this year, take a hard
look at your financial habits. A costly tax payment might mean you need
to raise your tax payments throughout the year; consider asking your
employer to pay more money from your wages toward taxes. A hefty refund
could be an indication to put that extra money you've been paying to the
government elsewhere, such as an investment. Look at the end of last
year's tax season as an opportunity to maximize your savings throughout
the coming year. (To answer more of your tax questions, read Common Tax Questions Answered.)
File Taxes in Seven Steps
1. Contrary to popular belief, not everyone needs to
file taxes. Generally, you must file if your gross income exceeds the
minimum level set by the government. Further exceptions are listed on
the IRS website.
Your tax bracket depends on your income level, which in turn determines the tax percentage you'll pay. Your filing status is based on your family situation, and will fall under one of five headings: single, married and filing jointly, married and filing separately, head of household and widowed. Tax payments are based on these two variables, and each carries its own deductions and exemptions.
One more factor you might have to consider is extensions. It
may be that circumstances prevent you from filing your tax return by
the deadline. The IRS grants six-month extensions to those who apply in a
timely manner. Keep in mind, however, that this only allows additional
time to file your tax claim; you still have to pay the estimated amount
due by the deadline. Extension forms can be downloaded from the IRS
2. Next are receipts, such as W-2s,
last year's tax return amount and all other related paperwork. You also
need the proper tax forms for this year, which can be downloaded
3. Calculate your gross income (all the money you earned the previous year), then, figure out your adjusted gross income (AGI) by deducting earnings that are non-taxable, such as IRA contributions. (For more, read IRA Contributions: Deductions and Tax Credits.)
4. To reduce your tax payment further, decide whether it's most advantageous to opt for itemized or standard deductions.
Itemized deductions are any items found on a government-determined list of allowable deductions; a few examples are charitable contributions, accumulated interest on investments or career-based travel expenses. The alternative is a standard deduction,
a dollar amount set by the government, which varies based on your
filing status. Opt for whichever will reduce your taxable income the
Once you've figured out the total for your itemized or
standard deductions, subtract this amount from your AGI. The government
also offers personal exemptions up to a preset amount. Personal exemptions cover you and your qualifying dependents, and are based on how much you earn.
you're not sure whether you qualify, check the IRS website, answer a
few simple questions and you'll find out if you can claim this
exemption. Subtract your personal exemptions amount from the sum total
of your previous calculations. This is your taxable income, or the final amount on which you will be taxed.
5. Calculate your total tax payment by multiplying your taxable income figure by the tax rate
that matches your income bracket. The tax you've already paid through
your paychecks is indicated on the W-2. Subtract your tax payment from
this figure. This calculation determines whether you have over or under
paid. You could be penalized if you've underpaid by a significant
amount, but in most cases you'll either pay what's due or claim a refund
if you're entitled.
6. You may also be able to claim tax credits against
your income, such as child credits or retirement savings. Tax credits
are a real bonus, because unlike deductions, which merely reduce your
taxable income, credits decrease your overall tax payment on a
dollar-for-dollar basis. (Learn how by reading, Give Your Taxes Some Credit.)
7. You can file your taxes either through the mail or online. Fill out the appropriate forms and send them off.
The IRS prefers e-filing.
If you're claiming a refund, you'll receive it faster by filing online.
Each person who e-files also receives confirmation that the IRS has
begun to process the forms. To e-file, your taxes need to have been
completed through tax software or by a professional. A few other
restrictions can be found on the IRS website.
If your tax return
is fairly straightforward, you might choose to go with paper-based
filing. Make sure to triple-check your calculations before you send in
the forms, and verify that your Social Security Number (SSN) and full name are on every page. You can send your payment along with the return, or pay online.
you might hire an accountant to handle your taxes, especially if they
are particularly complex. Be sure to check your accountant's
credentials; if your claim is filed incorrectly, only you will be held
The Bottom Line
Although tax season is dreaded by many, it's an unavoidable fact of
life and needs to be faced head-on. After all, it's your hard-earned
money that you're forced to part with each April. Once you've
successfully mastered the basics of taxes, you're set for life. Each
year you can smartly and efficiently complete and file your tax return,
and be secure in the knowledge that you are truly the master of your
For a comprehensive look into your taxes, see our Income Tax Guide.
is working toward a Masters in Business and has spent nearly five years
working at a financial institution. She has also published several
articles in various magazines and websites, including Westworld, Abroad
View and Visions.
Originally posted on Investopedia.com