Your Tax Return

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Your Tax Return

The federal and state governments collect taxes to pay their bills and provide public goods and services. Our tax collection agency in the United States is the Internal Revenue Service (IRS). Taxes are collected by the IRS from individuals throughout the year through tax withholding from each paycheck.

Filing a tax return is the equivalent of completing an income tax self-assessment. It is simply the process of determining if you have paid the correct amount of income tax for the year based on your taxable income. The taxes withheld from your pay are estimates. When you file a tax return you and the IRS are in essence "settling up." You will owe them money if you underpaid or they may owe you money if you overpaid throughout the year.

This settling up process is required for most individuals each year and is completed by filling out the appropriate tax return form for the federal and state government. A tax return form is a report filed with the IRS or your state government (if applicable) containing income and other important information necessary to calculate the actual tax you should pay for the year. This actual tax owed is compared to what you had withheld; the difference will result in a refund if you overpaid or an amount you owe if you underpaid.

The standard U.S. individual tax return is Form 1040. There are also many supplemental forms. All of the income information required to be reported on your tax forms will be sent to you by your various employers and financial institutions. We will discuss this further below.

Organizing your tax information

Whether you prepare your taxes yourself or use a tax preparation service or an accountant, you still need to organize your tax information. If you take your time and approach it in an organized way, it doesn’t have to be overwhelming or even take a lot of time. For example, you could keep it in an electronic or physical folder and add to it as you approach tax time. Employers and most others must send you tax information by January 31.

Personal information

Start with the personal information you will need, which includes your Social Security number and that of your spouse and dependents, if you have any. You’ll need last year’s tax return and your checking account and bank routing number, in case you’ll get a refund and want to have that directly deposited into your bank account.

Taxable income

To determine your income for tax purposes, you need your W-2 from your employer and any 1099s you may receive. The W2 is a tax form that your employer sends you every January that reports wages earned during the previous year, and state and federal taxes withheld. The 1099 is a form that a client will send you for work you did in a capacity other than as an employee, for example, as a side business or as a self-employed worker. If you receive alimony or unemployment benefits or get Social Security, you will also need statements that reported them.

Here are some other types of income and adjustments to income that you may have:

• Investment or interest income from a bank, credit union, or other financial institution
• Income from jury duty, scholarships earned, or gambling winnings
• IRA or other retirement plan distributions
• Income from sale of a home or rental property
• Cancellation of certain debts

Tax withholding

When you complete a W-4 form for your employer, you are providing them with information that will determine how much of your income will be withheld and paid to the federal and state government every paycheck. The taxes withheld are only an estimate of what you owe in taxes.

Every year, you are required to complete a federal and state tax return to determine if you overpaid or underpaid your taxes.

• If you overpaid, you will get a tax refund. Remember, this is your own money the government is giving back to you.
• If you underpaid, you will be required to pay the difference to the government when you file your taxes.

If you find that what you are having withheld in taxes is significantly over- or understated, you should complete a new W-4 and request that more or less in taxes be withheld.

Review this sample W-2 to learn more about your income and taxes withheld. This document is necessary to complete your tax return(s).

Here is a link to a sample Form 1040 with explanations of the numbers that were filled in.