How to do your taxes ?
Whether you have joined as an employee or started earning as freelancer or self employed business person, paying taxes will be a certainty. Filing taxes is compulsory even if your employer or contractee withholds the taxes on your earnings and deposits to IRS .
What you need to file tax return?
At the minimum , you should have Social Security Number (SSN) .If you do not have SSN, you need Individual Taxpayer Identification Number (ITIN) .ITIN is not only used for tax purpose but also for identification by many organizations -like banks, insurance companies or schools.So, you will have to first apply for an ITIN to IRS which is assigned to a taxpayer who is not eligible to obtain a Social Security Number (SSN).
Why Tax Filing ?
If you think , your duty is over if the tax is withheld by employer or payer , then you are wrong. There may many reasons that you must file tax return . Some of the reasons may be as under:
- Internal Revenue Code compels you to file tax return.
- The tax computation by including other income or losses may finally give you refund of taxes withheld. You can not receive refund from IRS unless you file tax return.
- You might have income not included in your paycheck that law requires you to report and which may result in you owing more in taxes.
It is important to note that if you fail to file tax return when you are required to file tax return by law, IRS may impose failure to file penalty on you.
When is return due?
Your tax return for the tax year is due on or near April 15 of the following year.Your tax return for 2019 will be due on April 15, 2020. You can also apply for six months extension for filing tax return.
How to File a Tax Return
If you have never filed tax return (I guess if you are reading it) , the taking professional help from CPA or tax attorney is advisable. If you are confident on computation of total income ,you can use IRS free file program to get free online services from top tax software companies. You can also file tax return Form 1040 manually and sending by mail.
How to Compute Your Taxes ?
The first step to compute the tax on your income is to compute gross total income for the whole year which is basically aggregate income earned or credited to you .Please note that IRS will already know income from From W2 that your employer gave you and reported to IRS or from the Form 1099s if you are self-employed. How much you need to pay in taxes is determined primarily by your total income and applying the tax as per the tax bracket applicable to your income . Here is step wise guide to compute taxable income .
Standard deduction vs Itemized Deduction
As the picture suggests above, you do not pay tax on aggregate income but on total income which is computed after either standard deduction or itemized deduction. Standard deduction , is a lumpsum deduction allowed as per your filing status , is simple and you don’t need any proof for its claim, but if you claim itemized deduction, you will have to keep record of expense .
How to pay taxes or get refund?
Before you file tax return , you need to pay any tax that you are liable to pay after final computation. There are many ways to pay taxes. Not paying the tax before filing return will invite failure to pay penalty. If you have financial problem, IRS has instalment plans also , depending upon the facts of your case.
If the calculation of tax finally results in a refund, you can get it by filing the tax return . The IRS will process your return as per its schedule and issue refund in due course . Read also where’s my refund to know how much time IRS will take you to send refund. You have also an option for receiving your refund by cheque or by direct credit your bank account.
How to amend tax return?
If for any reason , you feel or found that there were errors in the tax return, IRS allows you to amend the return. Please read how to amend return.
Saving copy of return
It is prudent to save a copy of your tax return and all the documents based on which you computed total income , for your records.These will be required to refer when you site for doing your taxes next year or in case of IRS audit . You should know that IRS also provides transcript of your return.