Easy Guide to Tax Filing
- Select a filing status. Tax rates and deduction allowances depend on your filing status, so you must first determine which filing status applies to you: single, married filing jointly, married filing separately, head of household or and qualifying widow(er) with dependent child. The status you select should be based on your situation as of the last day of the tax year.
- Document all of your income for the fiscal year. Employers send out annual income reports to both their employees and the IRS after the close of each tax year. Most people receive their wage and tax statements by late January or early February. Employees receive W-2's whereas freelancers and independent contractors receive a 1099 report of income. Banks and investment firms may also send out 1099 reports for income, such as interest accrued or gains from investments in the stock market. These reports show how much income an individual received during the year, and they also list any deductions taken from that income in the form of federal and state taxes, deferred compensation and social security contributions. Use these forms to calculate your total income and file copies of every W-2 or 1099 report along with the rest of your tax submission.
- Claim any exemptions or deductions which apply to you. Exemptions and deductions allow you to reduce your amount of taxable income. Permissible exemptions include yourself, your spouse and any dependents such as your children. According to the InvestorGuide, the most common items that qualify for deductions include mortgage interest payments, real estate taxes, medical expenses, donations to charity, contributions to IRAs, alimony payments and certain types of loan interest payments.
- Calculate your adjusted gross income. You do this by taking the amount of gross income and subtracting any applicable deductions. The amount left over constitutes your adjusted gross income. Take care to make accurate calculations and maximize all deductions because your adjusted gross income represents the portion of your income that is taxable.
- Apply for a due-date extension if necessary. Mary Beth Franklin, Senior Editor of Kiplinger's Personal Finance, notes that to obtain an extension you must file IRS Form 4868, "Application for Automatic Extension of Time to File U.S. Individual Income Tax Return" prior to April 15. Getting an extension can be especially helpful for those with complex circumstances like an extensive investment portfolio, stock options, rental properties or a small business. Failure to file your taxes on time or file an extension generally results in interest fees, fines and other penalties.