Completing a Tax Return

Filing your tax return can be daunting, but understanding the process and taking it step by step can make it more manageable. This article guides you through the essential steps to ensure a smooth and accurate filing experience.

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Step 1: Decide How to File

There are multiple ways to file, each one with different time and cost requirements.

• Paper Tax Return: Print, fill out, and mail in your tax forms to the IRS. This option is often more difficult than e-filing, as you will have less guidance on what to do, and leads to slower processing times.
• Free File: If your adjusted gross income is $79,000 or less, you may be eligible to use an IRS Free File partner to e-file your taxes. With this, you select a partner, answer a series of questions, and receive a properly filled-out tax form, including information on whether you owe taxes or will receive a refund, all for free.
• Free Fillable Forms: If your adjusted gross income (AGI) is over the limit for Free File, you can also use the free digital fillable forms by visiting this site. You can either print the document or use PDF editing software to fill it out, but you must input the data and do the math yourself.
• Commercial E-Filing Software: You can use commercial e-filing software such as Turbo Tax, H&R Block, Tax Slayer, etc. to guide you through the filing process. These programs may offer more advanced filing options, such as assistance with audits and state filing, but they come at a cost, usually ranging from $100 to $200.
• Hire a Professional: If you have a complex situation, it may be worth it to hire a professional to do your taxes for you. They will let you know what documents they need, fill out your tax return, and ensure everything is correct when they send it to the IRS. The drawback is that professionals can be expensive. The most basic tax return typically costs around $220 and increases from there.

Step 2: Choose Filing Status

Your filing status is the category of life situation you fall into, as designated by the IRS. The options are single, married filing separately, married filing jointly, head of household, or qualifying widow(er). The one you select/fit can significantly affect your tax liability.

Step 3: Gather Documents

Filing your taxes requires lots of specific documentation. This will include your Social Security number, details of dependents, income documentation such as W-2 and 1099 forms, and receipts or documentation for deductions and credits. Depending on your situation, you may require additional information or documents such as rental income, self-employment income, and Social Security benefits. The following Coach can help you learn what documents you’ll need so that you have them ready and on hand when you go to file.

Step 4: Calculate Your Deductions, Credits, and Overall Liability

When calculating your taxes, several factors come into play. Your tax bracket is the most significant, as it sets the baseline for your overall liability. Basically, each section of your income will fall into a certain bracket and be taxed the corresponding percentage. This article explains more about how tax brackets work.

Deductions reduce the amount of your taxable income, which can help move you down a bracket or change how much money is taxed at a certain percentage. Some common deductions include mortgage interest, state and local taxes, and charitable contributions, but most people take the standard deduction since it’s often more. For tax year 2023, the standard deduction is $13,850 for single filers and those married filing separately, $27,700 for those married filing jointly, and $20,800 for heads of household.

Once you know how much you owe from your tax bracket, credits can reduce your liability even further. Common credits include the Earned Income Tax Credit, the Child Tax Credit, and education-related credits. When you use e-filing software to file your taxes, you’re asked about eligibility for many deductions and credits. Most won't apply to you, but those that do can save you significant money.

Once both your deductions and credits are taken into consideration, you’ll have your overall tax liability. This is what you owe in taxes for the year. From there, you’ll compare that number with what you’ve already paid throughout the year. If what you’ve paid is higher, you’ll get a refund of the excess money. If it’s lower, you’ll need to make up the difference.