What is a tax return?
File annual tax returns to report income and taxes to the IRS
You’re probably familiar with tax returns on some level, but if you’ve never filed a tax return, you may have questions about the process. In the U.S. you need to file an annual tax return with the IRS generally if you earn above a specific amount associated with your filing status.
A tax return is a form you submit to the taxing authority to indicate how much you earned and paid in taxes over the previous year. In addition to completing a federal tax return for the IRS, some people also need to file a state tax return.
You want to pay attention to tax deductions and tax credits, which reduce your tax liability. Many people can handle preparing tax returns themselves, but for more complicated financial situations, you can hire a professional.
Filing a tax return is your obligation as a U.S. citizen or resident if your income is above a certain amount.
Jump to insightForm 1040 is commonly used for federal tax returns, but other taxing authorities like state governments require tax returns as well.
Jump to insightGather essential paperwork that documents your income and deductions to simplify the tax return preparation process.
Jump to insightPrepare and file your tax return before the deadline each year to avoid IRS penalties; electronic filing can speed up the task.
Jump to insightTax returns explained
A tax return is a form you fill out annually that provides information about your income and deductions to the IRS or other taxing authority. It’s not the same thing as a refund.
Form 1040 and other tax forms provide income details to the IRS. This includes income from wages, interest, dividends and retirement income. “In some cases, you may owe a balance to the IRS, or if you had proper tax planning and paid enough taxes during the year, you may be entitled to a refund,” said Jessica Wheaton, the director of tax and accounting services at Fiske & Company in Plantation, Florida.
No one wants to be on the wrong side of the IRS, so make sure you know whether you’re required to file a tax return. Most U.S. citizens and permanent residents working in the U.S. must file a return. If your gross income exceeds the filing requirement associated with your filing status or you had over $400 in net earnings from self-employment, you must file.
Filing requirements vary based on marital status, income and age. For example, a single person under age 65 with an income of at least $13,850 in 2023 must file a tax return. A single person 65 or older must file if their income was at least $15,700 in 2023.
In addition to accurately reporting all income sources, you need to total how much you already paid in taxes throughout the year. That determines whether you owe money or will receive a refund.
» MORE: Best tax relief companies
How do tax returns work?
Wheaton noted that when discussing tax returns, most people think of Form 1040, Individual Income Tax Return.
A tax return is a document showing whether or not you’ve paid the correct amount in taxes throughout the year. Since many of us either have taxes withheld by employers or pay quarterly estimated taxes (if you’re self-employed), you’ll compare the taxes you already paid with what the IRS says you must pay.
To prepare tax returns, gather all tax documents you receive, such as W-2s and Form 1099. Peggy James, an independent accountant and financial coach in Durham, North Carolina, told us, “You’ll also want to have information about any adjustments to income, which could include things like student loan interest paid or educator expenses.”
Check the IRS requirements to be sure, but there are many types of income the IRS deems taxable:
- Wages and employee benefits
- Freelance or independent contractor income
- Income from renting out personal property
- Capital gains, interest, dividends
- Retirement benefits, Social Security, unemployment
- Tax refunds, canceled debts, gambling winnings, alimony
Deductions and tax credits are also an important aspect of tax returns. These reduce the amount of tax you’re required to pay (your tax liability), so it’s in your best interest to take advantage of any deductions and credits you may qualify for.
Wheaton cautioned, “Using tax deductions can be cost-saving, yet tricky, so it is highly recommended to consult a tax professional if you are curious about which deductions apply to you.”
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What's included in a tax return?
Each tax return form contains most of the same basic information to verify your identity and indicate how much you earned and paid over the tax year. The IRS website offers guidance to determine which tax form to use, and if you file electronically, the tax preparation software will decide for you.
Personal information
The personal information section of a tax return is crucial for correct calculations of taxes or refunds owed. Double-check the accuracy of your name, address, Social Security number and filing status to avoid any mix-ups. Include any dependents as well.
Income
As mentioned earlier, the IRS counts many different types of income as taxable. Attach all forms required by the IRS, including Form W-2.
James explained that you need to include all income sources. This means that you not only report your wages but also interest and dividends, income from any self-employment and profits from investments. Follow up with employers if any information is missing or they’re late in issuing your W-2s.
Deductions
Deductions are listed within the Income section of Form 1040. James said, “Deductions reduce the amount of income on which you pay taxes, so they essentially shield some of your income from the tax man.” She stressed the importance of maintaining good records throughout the year — thinking ahead about expenses that could lead to potential deductions is helpful.
Tax and credits
“Tax deductions and tax credits both have the same goal, that is, to reduce how much you pay in taxes,” Wheaton explained. “A tax deduction simply reduces your taxable income, whereas a tax credit is a dollar-for-dollar reduction of your tax liability.”
The following are some of the main federal tax credits to consider:
- Earned income tax credit: For workers with low to moderate income
- Child tax credit: For those with children under age 17 at year’s end
- Education credits: For those with higher education costs
- Clean vehicle credits: For those who’ve purchased certain electric or fuel cell vehicles
- Energy efficient home improvement credit: For those who’ve made certain upgrades to their home for improved energy efficiency, like windows
- Residential clean energy credit: For those who have installed solar, wind or geothermal power; solar water heaters; fuel cells; or a battery for energy storage
Be sure to read the fine print on tax credits before making any large purchases. For example, Wheaton said: “If you were looking for an excuse to purchase an electric vehicle, there is also a $7,500 EV credit. But before you zoom off the lot, be sure it is an eligible vehicle for the credit, as not all will qualify.”
Payments
In this section of Form 1040, list all payments you’ve made. Refer to your W-2s and 1099s and follow the instructions on the form to provide the correct amount for each box. You’ll also list applicable refundable tax credits like the earned income credit in this section.
» MORE: How to file your taxes for free
How to fill out your tax return
You don’t want to put off filling out your tax return each year. Below are the main steps to follow.
1. Gather tax documents
First, get all the required documents together. Your employer is required to file W-2s and submit them to you by Jan. 31. Watch your mail and email for these documents and keep them in a designated tax file (digital or physical).
Other forms, like the various 1099s, are also essential. Form 1099-INT is for interest income, and Form 1099-NEC shows income for independent contractors, for example.
If you think you may itemize deductions, gather any applicable receipts for mortgage interest, charitable donations, qualifying medical expenses and other potential deductions.
2. Select filing method
Decide how you will file your tax return. The IRS states that electronic filing is “fast, easy and secure” and that you get your refund faster. If your adjusted gross income is $79,000 or less, you can file with an IRS Free File partner for free. The IRS also offers free online fillable tax forms to everyone, regardless of income.
For more complicated tax returns, you can use online tax software such as TurboTax or Tax Act.
3. Select filing status
The IRS has an interactive tax assistant to help you choose the correct filing status. Your status depends on whether or not you were married on Dec. 31, but sometimes more than one filing status may apply. In that case, you can choose the most advantageous filing status.
Options include:
- Single
- Married filing jointly
- Married filing separately
- Head of household
- Qualifying surviving spouse
This status impacts your filing requirements, tax credit eligibility and how much tax you pay. You can certainly consult an accountant if you wish to get more guidance.
4. Decide whether to take the standard or itemized deduction
The IRS says that most Americans qualify for the standard deduction. The standard deduction is a flat amount based on filing status; it is adjusted annually for inflation.
Unless you accrue enough in itemized deductions to exceed that amount, the standard deduction is your best option. If you’re ineligible for the standard deduction, you must itemize your deductions.
5. Complete tax forms
Complete your tax forms, referring to your income and other statements as needed. Your tax preparation software or professional tax preparer can tell you which form you should use, and forms come with step-by-step instructions.
You may need to complete additional forms — the IRS website contains detailed guidance on these. Here’s some other paperwork you may need to fill out:
- Schedule 1: Additional Income and Adjustments to Income
- Schedule 2: Additional Taxes
- Schedule 3: Additional Credits and Payments
6. Arrange your payment or refund
As you finish your 1040 or other tax form, you’ll see whether you’ve overpaid and are due a refund or if you owe more in taxes. If you’re getting a refund, simply include the bank information for direct deposit. If you owe money, follow the directions online to pay. The IRS provides numerous methods for payment.
If you need more time to pay your taxes, you may apply for a payment plan, though under a payment plan your balance continues to interest and penalties until you’ve paid it in full.
7. Submit tax return on time
Taxes for the previous year are typically due by April 15. However, if you receive all W-2s and other documents as expected, you may complete your tax returns right away (late January) to avoid any stress due to procrastination.
It’s always a good idea to start gathering your tax documents early, and if you plan to hire a professional, you should do that early, since tax season is busy for accountants.
The IRS charges a “Failure to File” penalty of 5% of unpaid taxes for each month or part of a month your tax return is late (the amount won’t go over 25% of the unpaid taxes). Keep in mind the IRS charges interest on penalties.
FAQ
What's the difference between a tax return and tax refund?
A tax return is a form you file annually with the IRS or other tax authority to report your income and other financial details. A tax refund is money back from the government to a tax filer who paid more in taxes throughout the year than they owed or who qualifies for a tax credit.
What documents do I need to keep for my tax returns?
You need income records like W-2s and 1099s, statements from banks and payment apps, and records of checks paid to you, digital asset transactions and unemployment compensation. You also need documentation of income from self-employment as well as proof of eligibility for tax credits and deductions.
When are tax returns due?
Typically, the federal tax return deadline is April 15, though that date shifts ahead to the next business day if April 15 falls on a weekend or holiday. For fiscal-year filers, returns are due on day 15 of the fourth month after the end of the fiscal year.
You may request a six-month extension by filing Form 4868, but this doesn’t give you extra time to pay taxes due. It keeps you out of trouble for failing to file and gives you time to gather the necessary documents, but you should estimate the amount you owe and pay on time.
How long should I hold on to my tax return?
Peggy James, an independent accountant and financial coach in Durham, North Carolina, said: “Usually the recommendation is to keep old tax returns for seven years. That doesn’t necessarily mean you have to store paper copies, though — digital copies are fine.” You need to be able to access them if the IRS or another agency audits you.
The IRS recommends keeping copies of filed returns to help you prepare future ones and to make calculations if you file an amended return.
Bottom line
Filing your tax return is a chore you probably don’t enjoy, but keeping careful financial records will help streamline the process, whether you complete your tax returns yourself or hire a professional.
Paying attention to deductions or tax credits you’re eligible for could save you money. The more complicated your tax returns are, the more likely you are to make mistakes that could cost you. In many cases, the standard deduction will serve you better than itemizing deductions.
Aim to complete tax returns accurately and on time to avoid penalties and unwelcome attention from the IRS. Electronic filing typically simplifies the task and gets your return processed quickly.
Article sources
- IRS, “How to file your taxes: Step by step.” Accessed Sept. 26, 2024.
- IRS, “Topic no. 301, When, how and where to file.” Accessed Sept. 26, 2024.
- IRS, “Credits and deductions.” Accessed Sept. 26, 2024.
- IRS, “Refunds.” Accessed Sept. 26, 2024.
- IRS, “Topic no. 305, Recordkeeping.” Accessed Sept. 26, 2024.
- IRS, “Topic no. 501, Should I itemize?” Accessed Sept. 26, 2024.
- IRS, “Additional information on payment plans.” Accessed Sept. 26, 2024.
- IRS, “Failure to File Penalty.” Accessed Sept. 26, 2024.