- Glossary
- Tax Return
Tax Return
Tax return is a form or forms that are filed with a tax authority and disclose income, expenses, and other relevant tax information. Tax returns enable taxpayers to assess their tax liability, plan their tax payments, and receive refunds for overpayments. In most nations, an individual or corporation having reportable income, such as wages, interest, dividends, capital gains, or other profits, must file an annual tax return.
Understanding Tax Returns
In the United States, tax returns containing information necessary to calculate taxes are filed with the Internal Revenue Service (IRS) or with the state or local tax collecting agency (Massachusetts Department of Revenue, for example). In most cases, tax returns are prepared using forms required by the IRS or another applicable entity.
Individuals in the United States submit federal income taxes using variants of the IRS tax form 1040.To file their yearly reports, corporations will utilize Form 1120, while partnerships will use Form 1065. To record revenue from non-employment sources, a number of 1099 forms are used. Form 4868 is used to request an automatic extension of time to file a federal income tax return in the United States.
A tax return often begins with the taxpayer giving personal information such as their filing status and dependent information.
Sections of Tax Return
In general, tax returns have three key areas where you can disclose your income and assess your eligibility for deductions and tax credits:
Income
The income part of a tax return lists all sources of income. A W-2 form is the most commonly used way of reporting. Wages, dividends, self-employment income, royalties, and capital gains must all be recorded in various nations.
Deductions
Deductions reduce your tax liability. Tax deductions vary greatly by jurisdiction, but common examples include contributions to retirement savings plans, alimony paid, and interest deductions on certain loans.
Most expenses directly related to business operations are deductible for corporations. For their filing status, taxpayers may itemize deductions or take the standard deduction. Once all deductions have been subtracted, the taxpayer can calculate their tax rate based on their adjusted gross income (AGI).
Tax credits
Tax credits are monies that are used to offset tax liabilities or taxes payable. These, like deductions, vary greatly among jurisdictions. However, credits are frequently assigned to the care of dependent children and elders, pensions, education, and many other things.
Following the reporting of income, deductions, and credits, the return concludes with the amount the taxpayer owes in taxes or the amount of tax overpayment. Overpayments can be repaid or carried forward to the next tax year. Taxpayers have the option of making a single payment or making recurring installments. Similarly, most self-employed individuals may make quarterly advance payments to lower their tax burden.
Special Considerations
The IRS advises filers to maintain tax returns for at least three years. Other conditions, however, may necessitate a longer period of retention. In some cases, filed returns must be kept indefinitely.
If a tax return contains errors, an amended return must be filed to fix the problem.
Key takeaways
- A tax return is a document filed with the IRS that reports income, expenses, and other important financial information.
- Tax returns are used by taxpayers to assess their tax liability, schedule tax payments, and collect refunds for overpayments.
- Annual tax returns are required in most areas.
