5.2. File a tax return. What’s a tax return?. Simply put, this is a set of forms to help you calculate your tax obligation. Note: Not everyone must file a tax return. If you make less than a certain amount, you are not required to file . Tax notes continued….
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Not everyone must file a tax return. If you make less than a certain amount, you are not required to file.
This comes from your employer.
It is a summary of earnings and withholdings for the year.
You should have one for every job you held throughout the year (your employer also sends a copy to the IRS).
The government requires a copy of your W-2 when you file your taxes as well.
Not reporting your earnings will earn you a visit from the IRS.
Refer to pg. 164 for an example W-2
You get this for any interest you earned on money in the bank.
The bank sends a copy to the IRS and to you.
There are 3 types of forms most often used when filing taxes, all of which are available online, or at a post office or library.
The 1040 and 1040A forms allow you to itemize deductions to reduce the amount you owe.
This is helpful if you:
Own a home
Invest in the stock market
Run a business
To use the 1040 EZ you must:
be single or married and filing together
Under the age of 65
Have income of less than $100,000
Earned less than $1500 in interest
Have no income other than, wages, interest, tips, scholarships or unemployment compensation
Refer to pg. 167 for a sample 1040EZ.
This includes things like your name and social security number.
total wages/salaries/tips (usually found on your W-2). Note: if you held more than one job, you will need to add your earnings from all your jobs.
taxable interest income (this comes from your 1099-INT)
unemployment compensation (only if you filed, otherwise leave blank)
What do you get when you add these 3 together? This:
adjusted gross income (this is what you get when you add lines 1, 2, and 3 together). It’s recorded on line 4.
Next up? Deductions.
You may only claim yourself if no one else can claim you (like a parent or guardian).
Note: As a young person, there is typically someone else claiming you (since they are supporting you by providing food ,shelter, etc.)
If you cannot claim yourself, complete the worksheet on the back of the form, there may still be a limited amount you can deduct, even if someone else is claiming you.
If no one can claim you, you qualify for a standard deduction (listed on the form based on how you are filing).
When you subtract line 5 (your deductions) from line 4 (your adjusted gross income), you get line 6:
Your taxable income.
This is the figure used to determine your taxes.
Refer to pg. 167 for a sample of 1040EZ
Let’s start with the federal income tax withheld.
On line 7 you will enter the amount of tax that was already withheld by your employer (this is on your W-2, in box 2).
Don’t forget, if you had more than one job, you must add the amounts withheld from ALL W-2s to calculate an accurate total.
Next comes earned income credit.
If you had a really low income, you may be eligible for another tax credit (which is treated as if it were a tax payment).
On line 8 you add what was already withheld from your pay along with any income credits. This tells you the taxes you have already paid.
Each form contains a table with the amount of tax you owe for the year.
Remember, your taxable income is listed on line 6. You must find where your taxable income falls in that table, looking at the number that pertains to you (single or married filing jointly).
A sample of this tax table can be found on page 168.
Refunds can be issued electronically, and deposited directly into your checking account.
Don’t forget to sign your return, whether you are receiving a refund or making a payment!
Paying Uncle Sam
(ie. Amount You Owe)
When you don’t have an employer withholding taxes throughout the year, you must use another method to ensure taxes are still being paid.
Paying on a quarterly basis
when you work for yourself, you pay your estimated taxes every 3 months.
this helps business owners avoid taxes and penalties
Schedule C (1040)
Self employed business owners must file this (also known as C-EZ, Schedule C, or 1040)
SEBOs still pay income tax, social security, and Medicare
You may qualify for a tax refund loan