A tax return is the tax form(s) that is used to report your annual income and your federal income taxes with the IRS. Tax returns are essentially the forms you send out to the government which allow them to collect the appropriate amount of tax from your earnings. Taxpayers can use tax returns to work out their tax liability (the amount of tax they owe) and request tax refunds or pay outstanding taxes depending on whether they have underpaid or overpaid their taxes. Anyone who has earned money in the United States (albeit via a salary, dividends, interest, capital gains or other profits) must file a tax return once a year.
A tax return begins with an identification section, where you fill out parts about your personal information and circumstances. After this, the tax return is then divided into three main sections: income, deductions, and credits. Tax returns (in their simplest form) are fairly short documents, however, if you have multiple sources of income or are eligible for certain types of tax credits and tax deductions, you may need to attach several schedules (additional forms relating to these matters) to your original tax return form.
Here we will break down the main 3 sections you will come across on a tax return.
In this section of your tax return, you must clearly and accurately indicate all forms of income you have received during the year from all applicable sources. You need to report any salaries, dividends, royalties and capital gains in this section. This section is the bulk of your tax return in many ways, as any credits or deductions will apply to your overall income.
Many taxpayers will be eligible for standard deductions or itemized deductions, and you should detail those applicable to you in this section. Things such as alimony payments and mortgage payments can lead to certain tax deductions, as well as many other things. If you’re a business owner, all your overhead running costs are usually tax deductible.
By now, you will be able to see your taxable income and tax payable. The final section concerns tax credits.
This section is used for detailing any tax credits you are eligible for. Tax credits provide you with a direct dollar-for-dollar reduction on the “tax payable” amount that you just calculated. Many people, such as full-time students, are eligible for refundable and non-refundable tax credits.
The end of the tax return
The last section of the form determines whether the taxpayer owes money, or whether they are entitled to a tax refund. The majority of salaried employees have their taxes withheld from their pay throughout the year, so it is possible that they may owe (or be owed) money depending on the accuracy of their employer’s withholding.
In the United States, individual taxpayers should use IRS Tax Form 1040, corporations should use IRS Tax Form 1120, and partnerships should use IRS Tax Form 1065 to file their annual tax returns. Investment income is recorded on a different form, IRS Tax Form 1099.